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Friday's Closing Comment 4/30/2010

Bottom Line: The cracks and confirmed upside hooks tell us there’s a strong probability that a trading top is in.

But rather than mark the beginning of the end, we feel today’s decline is still part of a trading range that will soon lead to another push back up. Headline risk remains high and we know news induced pullbacks usually mean it’s a flush, giving the dip buyer a chance to re-fuel.

We are bearish and remain so, but our EW analysis says the intra-day sub-divisions will take the YM’s a bit lower, which in turn will lead to another bounce. If this bounce fails to take out the recent high, we are prepared to make an aggressive call to be net short.

We see so many names falling out of bed that were making new highs just a few short sessions ago. These are the cracks we have been alluding to for the past several days. Now, they are popping up more frequently, which we take as a sign of exhaustion. Making matters more convincing for a potential top is that few seemed to be overly alarmed by this. Of course we take that as another sign of growing complacency. We see several traders ignoring the blow-ups in favor of seeking out the next DNDN.

For Monday, we expect to see a little more weakness, then some relief. GS will call the tune. This last purge takes out all the bottom feeders and now too may will be scared to play, even though they should since it’s getting overdone. We are looking for GS to sell off a bit more, but once it firms, so too will the SPX.

Since this screws up the most amount of people, this is what we are anticipating. A push back up in the SPX that fails to make a new high should be viewed as a gift. A gift to line up what we want to be short for the real start of a new bear trend. Remember to check back this weekend for our updated COT based Trend model that will address whether the Crude rally will continue, are Bonds really breaking out and has the Dollar run out of gas. Have a great weekend.