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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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  • Sell Into Next Rally Ahead Of The June Swoon 0 comments
    May 25, 2013 7:53 AM | about stocks: QQQ, DIA, SPY

    If you would like to track updates on the charts shown below sign up at alphaking.com, click on the verification email, and get SIX months access to my on-line newsletter for free!

    At first blush the pullback in stocks this week looks like Halloween has come early and the kids in costumes have turned into real monsters. Then you take a look at the very modest damage suffered, after such a large run up, leaving the viewer asking if anything meaningful happened at all?

    The answer between the two, I believe, is the charts I have been showing each Friday all year, which I will once again.

    There are four phases of the bull/bear cycle, with the current phase the orange line of high risk blow off bull that is looking at forming a peak from which the next Great Bear will be born.

    The chart below shows the average monthly returns for each phase of the cycle, with the black line current trading action for 2013 for the NASDAQ. That chart says we are overdue the corrective churn period highlighted by the numbers 2 through 5, with a big win for the bears all that is needed to confirm the next Great Bear has begun.

    Remember, that maroon extreme line can start at any moment, with the rally peaks represented by #2 and #4 the most likely starting points for the big win for the bears that kills the bull market off the 2009 lows. Update continues below chart…

    (click to enlarge)

    The second chart shows the Dow Jones Industrial Average coming within spitting distance of touching the upper trend-line of an expanding triangle near point E at 16,000 this week. That was the target of my 2013 forecast I wrote about late last year, and here we are. Parabolic moves coming at the end of prolonged bull markets reverse with similar speed experienced during the up-slope, with this chart suggesting the bulls better be ready to hit the sell button on any further rally push, as that trend-line is likely the mother of all resistance points. Update continues below chart…

    (click to enlarge)

    The third chart below compares other high risk phases of 1987 and 2007 with current trading action, especially in regards to the position and expected movement of the contrarian indicator on top, and trend trading indicator at the bottom of the chart. That comparison shows the white line of the current NASDAQ closely following returns experienced during the 1987 run up in the middle rally position. Those rally peaks - in the middle and final rally position - compare to the numbers 2 and 4 in the first chart above.

    The position of the white NASDAQ line against the 1987 purple one says the top of the middle rally is in, though to expect an up week next week before the slide resumes. While the trend trading indicator at the bottom of the chart says we have a little more rally to go before the peak is in for the middle rally.

    Next week, and the week after, should answer the question of which of those two views is correct, and you can expect me to be selling and moving to cash later next week, or the week after at the latest.

    As Sherlock put it, the game is afoot, and the chart below is the likely stock trading game of 2013.

    In short: get ready to sell in an expected rally over the next week or so, ahead of what is likely to be a painful June swoon (click to enlarge)

    If you would like to track updates on those charts you can take a six month free trial to my alphaking newsletter. Simply 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.

    Disclosure: I am long QQQ.

    Stocks: QQQ, DIA, SPY
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