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Back At The Desk, Wednesday, October 3, 2012 - Short Term Update

|Includes: DIA, FXE, IEF, QQQ, SPDR S&P 500 Trust ETF (SPY), TLT, UUP

Bottom Line:

Several of the indicators I watch are recovering from an oversold condition. Thus, in the short term (next few days) I would expect a positive bias in prices. That said, the bigger picture in negative.

Indicator Score:

  • Bullish: 15%
  • Neutral: 75%
  • Bearish: 10%
  • Aggregate Interpretation: The market has fallen since it's 9/14 peak and dragged down most of the short term indicators as well. The choppy upward move since the 9/26 lows has alleviated some of the oversold indicators and pushed them to the neutral area. Since many of these indicators oscillate and are mean reverting, I would expect the market to continue a bit higher before the threatening to turn lower.

Indicator Snap Shot (NYSE):

McClellan Oscillator:

Notes: Not exactly extreme, but certainly closer to oversold. Since the bounce has been so choppy I would expect a modest rise to a level producing a bearish divergence.

Advancers - Decliners:

Notes: Bouncing off oversold, the AD line is hinting the upwards correction is half over.

Up Volume - Down Volume:

Notes: Here too...


Notes: Same...


Notes: Etc...

Put / Call Ratio:

Notes: The VIX is still extremely low and commercial hedgers are betting on a big move up according to the huge long position they've built up in VIX futures. The CPC recently registered a bullish extreme.

Price Action:

SPX Short Term:

Notes: Running up against some resistance, though the indicators are hinting the SPX should at least make it to the 1460 area. This area of support is the price level before the Fed QE-Infinity, breaking this area would be a huge negative in my opinion.


Notes: What are the circles you ask? Those are the 1) European "whatever it takes" comment, the 2) Fed QE-Infinity and beyond announcement and the 3) Japanese QE announcement. It will be a huge negative for the market of we start breaking below those levels.



Notes: The rally in the transports has been extremely weak, failing to make any kind of headway what so ever. It will be a strong negative mark against the market if we fail to make the area of resistance and instead break the level of support that has buoyed the transports for months.


Notes: The Utilities have broken down out of their upward trend channel. Previous support is now resistance, and the Utilities, like the Transports, have thus far had a very difficult time making any upward progress.

Other Notable Notables:

  • I've been updating the status of the commercial hedgers, they are currently holding a huge net short position. Last week however it was the speculators (generally considered the dumb money) who captured my attention. They are currently net long by an astounding $51,000,000,000. An all time record as far as I can tell.


The secondary indexes can't make any upward progress, and the main indexes have only made a very choppy move higher despite the oversold indicators. This is foreshadowing weakness. In the short term I'm expecting a technical bounce to continue, in the longer term, things look we're building a large top. I think Ben has painted himself into a corner. I don't want to be hyperbolic, but the "well I should stay long because any time now QE-Infinity is going to kick in" thesis could be the biggest bull trap since the 2007-2009 decline.

-Good luck trading, stay safe!

Bill L.