Market lost some ground yesterday, despite a small rally in the afternoon. Oddly enough, the price action of SPY has been straddling the high side of the band as support.
I am currently short/sell on the overall market, using SPY. This is based upon clear sell signals generated from my primary oscillators (Bollinger band and RSI) last Friday, 3/8/2013. Additionally, the current Stochastic's level clearly indicates an overbought situation, thus supporting my sentiment and position. Therefore, I have been selling some of my positions into strength, rotating out of others, and have placed tight stops on remaining positions. At this time, my current goal is to protect my profits, without much concern of a potential bounce back. Thus I have placed my stops at respective 20 day moving averages and I may tighten them further if the market continues to trend upward. I normally place stops at three different levels, but not today.
Many financial pundits are predicting a "pull back" and others are recommending "taking profits." It would be healthy for the market to correct as a means of reaching new highs later in the year. I believe we will see a correction of approximately 4.63% and testing support at the current Bollinger band low level of 148.4 (NYSEARCA:SPY). It would be more beneficial to realize a reduction to the 100 or 200 day moving averages which are currently 6.5% and 8.7% lower respectively, from today's level.
However, as stated previously, the current upward trend may still have legs and continue to rise to 155.7, approximately 1.65% from this point. This is based on my data and back testing, the market continues to rise a bit after the first sell alert, which was last Friday. On average, it continues to increase by 1.78% (on average). Based on yesterdays increase, potentially 1.39% remains to the upside. I am sensitive to this situation, as volatility remains muted and MACD currently supports the continued momentum but is slipping. However, I do not recommend adding any new money based primarily on the risk/reward aspect