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Kevin Wilde
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Kevin Wilde is the chief trading strategist at alphaking.com and a Marketocracy.com Master. Investors can follow his trading advisories via his Daily AK newsletter, or have their money run for them via Marketocracy.com money management services, where Kevin's trades will be automatically entered.
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  • How To Spot When The Current Blow-Off Rally Is Over 0 comments
    Feb 15, 2013 10:04 AM

    The problem with high risk years - like we are currently in - is there is no way to tell how long the blow-off phase will last, or how many blow-off/corrections/blow-offs there will be. Some phases last a total of two months, some a year or more. That is different than the other three major risk phases of the cycle - low, moderate, extreme - which, once established, last an entire year and follows the comparison template pretty accurately.

    However, we do know when the high risk blow-off has ended - when the bears score that big win that drives the dotted white line of the trend trading indicator at the bottom of the chart below into the yellow circle; then the next Great Bear has begun.

    We also have a major heads-up that a blow-off rally is about to suffer a significant correction that may turn into that big win for the bears - when the white contrarian line at the top of the chart below drops out of the red circles marking extreme overbought conditions. It is common during blow-off rallies in high risk years like we are in for the stock market to remain overbought for an extended period, which is highlighted by the red circles in rallies of other high risk blow-off years of 2007 and 1987. Those rally ended when their contrarian indicators fell out of the red circle, and that is what will happen when the current rally exhausts itself.

    Right now the white line of the current NASDAQ in the main body of the chart appears to be tracking the blue line of 2007 in both the middle and final rally positions, though any rally pop and acceleration would move the current NASDAQ closer to the purple lines of the 1987 experience.

    The latter is important as the final rally position for the current NASDAQ is perfectly aligned with the exact 2007 peak that led to the 2008/9 MAJOR bear and financial crises.

    So if the contrarian indicator drops out of the red circle here without the NASDAQ securing that rally pop and acceleration then THE top is likely to be in, and we should follow the blue 2007 comparison as to where we go next. If the NASDAQ can find that rally surge then the purple lines of 1987 should be the one to watch.

    Both say we are close to the start of the next Great Bear, though the question of how close has yet to be answered, with the white contrarian line falling out of the red extreme overbought circles the heads-up the fun part for the bulls is over, and the beware of bear sign posted.

    When the correction does come, whether the ADX line trends up or down on that sell-off will determine whether it is the sell-off post middle rally, versus it being the Big Kahuna plunge post final rally that confirms THE top is in and next Great Bear begun.

    If you would like a six month free trial to my alphaking newsletter sign up for the 30 day trial at alphaking.com, click on the verification email, and we will adjust to six months. I run four tracking portfolios - so lots of stocks to buy and sell! - as well as a 401K advisory for those looking to make and protect money in their retirement nest-egg.

    Have a great weekend!

    Kevin, Alphaking.com

    (click to enlarge)

    Disclosure: I am long QLD.

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