Extracted from the Feb 11, 2013 Market Update
Market Topping? Despite many signs suggesting that the markets are ready for a strong pullback (some of which are listed below), the trend indicator is still bullish. We will also examine key pieces of data before we render a full decision. We have seen strong signs of topping in this market before, and in each instance, at most the market let out a small amount of steam, before soaring to new highs. The Feds are twisting all the rules via their incessant desire to inflate the markets higher through forever QE (quantitative easing). Against such a backdrop, it is futile and dangerous to adopt the old contrarian strategy or ideology. In this market one has to use mass psychology and combine it with key indicators that do not rely on manipulated data, one of which is the newly developed trend indicator.
The retail investor is getting bullish so this is an important psychological development as this group has sat on the sidelines for a very long time. Longer term this indicates higher prices. In the short-term it suggests that a correction could be in the works.
Insider selling is now at an extreme level. This development confirms that some sort of correction is in the works. Insiders these days are very agile, so this cannot be taken as a long-term development. They jump in and out of the markets 10 times faster than they would 5-6 years ago.
Speculation is increasing; this can be seen by the fact the subprime mortgage bonds are starting to sell. The subprime market is becoming hot again. On a separate note this means you should not buy a house unless you get a good deal. This is something we have alluded to from the beginning. Under no circumstance should you buy unless it’s a great deal. If you cannot find a great deal, then wait. In the short-term there are signs that prices will pullback.
The heat is on; it is just a matter of time before all the players join the game and then the theme will become devalue or die. This will lead to another bubble or several bubbles as investors will be forced to look for a place to park their money. One of the bubbles will eventually be in the precious metals sector. In the end the entire commodities sector will go through a bubble phase. The end result will be the same. These markets will implode and collapse. As this is going to be an all out of war (something we spoke off years ago), it is going to have an impact on the financial markets. It will alter their normal trajectories and push them higher as investors pile into the markets. This confirms that the Markets have more room to move higher but in the short-term they are ripe for a correction.
Big drop in V readings
Volatility will not be as extreme as before and the bulk of the moves will occur in the direction of the trend, which in this case is up. We will most likely not witness many wild swings where the markets could move up or down up to 200-300 points in one day, at least not until the readings surge again.
Despite all the wild action, bonds continue to show signs of putting in a bottom. Out of the 4 main indicators in the daily charts, the strongest one has generated a new buy. Thus it appears that it’s just a matter of time before the others turn around. A rally in bonds is usually accompanied with the markets pulling back.
New sell in the Euro
We have a new daily sell signal. The euro usually trends in the same direction as the markets.
The strength of the SPX clearly suggests that for now all strong pullbacks should be viewed as buying opportunities until a new sell signal is triggered. This is further confirmed by our trend indicator and the fact that so many participants are still sitting on the sidelines. This is the most hated bull market in history and therefore every pullback must be viewed as a buying opportunity, until the trend indicator turns negative or generates an outright sell signal.
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