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Monday, January 14th, 2013 - Short Term Update

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

Bottom Line:

Between the overbought short & medium term indicators, the overhead resistance, and the extremely low VIX, the market has had trouble going any higher. That said, it hasn't pulled back either. If the sideways action continues to the point that the short term indicators reach "oversold" without any meaningful pullback, that would raise the odds that this is a sideways "recharge" correction before moving higher again. I'll be on the look out for new developments that could tip the markets hand.

Price Action:

SPX:

Notes: With the market in a tight range for several days now, there hasn't been much to report in the way of price action. The SPX is still running into overhead resistance set way back when the ECB and Bernake tried to one-two punch the market higher with promises of easing forever or until satisfied. Interesting that several Fed members already want to pull back on the easing policy already...

JJC: (2 hour bars)

Notes: Last week we looked at the Dow Transport Index and how it is very close to new highs, which would, according to Dow Theory, be a major positive and reconfirm the trend. Today we're looking at the JJC exchange traded fund which tracks the price of copper. Copper's conductive properties make it a widely used industrial metal, and its price is watched as a clue towards the state of the world economy.

JJC: (daily bars)

Notes: The previous image was on a 2 hour chart (same as the SPX) to show that it has not confirmed the move in the SPX. In this chart of daily closes, we can see that copper is badly lagging the SPX and has only had a minimal retracement since peaking in February 2012. It's difficult to say that one is more important than the other (copper vs the Dow Transport Index and Dow Theory), though copper's action is clearly a negative to the bullish case.

Indicator Summary:

  • Bullish: 4.7%
  • Neutral: 33.3%
  • Bearish: 62.9%%
  • Aggregate Interpretation:

Indicator Snap Shot:

Percentage of Stocks Above DMA:

Notes: The cumulative percentage of stocks above their 20 day moving average has declined ever so modestly, though still in well overbought territory. This indicator is more relevant over the medieum term, 1-3 months or so.

NYSE McClellan Oscillator:

Notes: Similarly, the McClellan oscillator continues to hover near overbought territoy, though it hasn't declined much either. Today's action has the 5 day moving average just starting to turn lower... what you typically see at the start of a decline.

NYSE Advance - Line:

Notes: Last week almost all of the short term indicators were overbought. The several days of sideways action has pushed most of the most sensitive indicators close to the neutral area.

NYSE TRIN:

Notes: Similarly the TRIN has move from overbought to nuetral.

Put / Call Ratio:

Notes: I've mentioned the VIX a few times in the last couple of updates, and I'm bringing it up again tonight because now the put call ratio's 5 day moving average has reached 1 standard deviation from the mean. By these measures, this market looks pretty complacent.

Talk again tomorrow,

Bill L.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.