Jan 13

Weekend outlook for 14th January 2013 – Euphoria , bullish sentiment, toppy?

Markets all over the world rallied higher in an “euphoria” stage as I expected and told most people to expect an euphoria move higher.

We got this and everyone seems to be bullish now , as markets is near 2012 highs and many european indexes been rallying a lot more than US , so they seems especially toppy.

For now – all my weekly charts indicators is telling that the rally is still ON – but when I look at the charts , every chart indicates that we are at a top.

To make it short:

1. VIX is hitting the trendline (YEARLY TRENDLINE) and every single time we hit this line – mkts topped out , I dont think this will be ANY DIFFERENT , and even VIX is the lowest in 5 years time. You have to go back to 2007 before VIX were same levels and you remember how high SPX were back then. I’m betting that VIX will be way higher from current levels very short term but also into February.

2. The weekly chart still on buy signal , but if we get a red week this one ,, very likely will turn to a weekly chart SELL signal , so this week is critical for both bulls and bears.

3. Dollar looks like an IHS pattern so I think dollar is about to rally higher and this would take mkts lower IMO.

4. If we look at the SENTIMENT right now , everyone bullish and many people very bullish. This is 100% what I expected back when everyone were bearish in November ,, remember I’m contrarian so when everyone says sell/crash I buy usually, and when there is party and everything seems fine ,, Im worried and either shorting or staying cash.

5. NYSI and NYMO showing both BEARISH divergences , very weak and this tells us that momentum to upside is not as good anymore, fewer stocks making new highs and this is not bullish. Everytime market gets a correction we have a bearish divergence in the NYMO NYSI before, same as we got now.

Conclusion: I dont know how earnings will be – but the charts and weekly charts saying that we are very overbought and extended to upside , especially small caps (RUT) has had a huge run,, everything I see pointing to a top INCLUDING VIX at such low levels,, 80-90% of the times VIX were at this level , we had a VIX going higher few weeks after and I dont think it will be different. I’m in shorts now and shorting the mkts as I believe its a great opportunity now , going into February when the debt ceiling debate comes on the table.

Right now the weekly charts still on buy signal , but it could change fast if we go red this week and by the way January option expiration week is usually bearish per statistics,, so if we get a red week , very likely sell signals will occur on weekly.

We made a lot last months going long mkts and small caps , time now is to be cautious , cash or short.


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