First a little commercial: More and more work at TTTHedge.com and Redliontrader.com will be done on Twitter. You can follow me and get a Twiiter account at: http://twitter.com/redliontrader or tom at http://twitter.com/tomandprisha. I update our indicator status during the day so that we can better understand the underlying sentiments. In addition Tom posts his trades. On Tuesday we will be making a Twitter announcement so stay tuned!
On a weekly basis now we will be updating these indices to use as a milestone to track the market progress in addition to our other indicators.
All the numbers are self explanatory except perhaps the "EFF" column. The EFF is the weekly efficiency number, how large was the final gain versus how far it traveled. For example: If the week opens on the low and closes on the high the efficiency would be 100%. This tells us the market most likely trended the week.
Our efficiency numbers for this week are quite low and percentage gains are small with the Russell 2000 showing a small loss on the week. We continue to consolidate from the August OPEX thrust and we should break out here either to the upside or downside in the next week or after Labor day. The general rule on the breakout favors the Bulls as they have had all the strength lately if you haven't noticed.
There was much talk this week about Doug Kass and his call for the market top. Mr. Kass's evidence for the market top is the fact that he called it when he called the bottom on March 9th. Since March 9th was correct his 1050 must be correct to.. right? Mr. Kass also reinforces his views based on economic fundamentals which if I understand his view he is basically telling us that our new economic balloon has be inflated with government stimulus helium and when that ends it will all leak out and hence we get a double dipper with the second re-inflation a more capitalistic/market driven helium.
Doug does not seem to have any particular reason why we realize this at 1050. Maybe his thinking is that when all the analyst come back from the beaches they will realize that they are holding junk and will sell-off. Not sure. Mr. Kass I am told is a really smart guy, and I do know that he is smarter than me, but I do want to send up a warning that the sky is most likely not falling. (Doug is not saying this.. he is calling the high of the year). A call for the top is not a call to short. Sharp and sudden pullbacks from explosive bull markets like the one we are in the midst of do not happen. A slow down of the upward drive and re-alignment of underling indicators seems to be the norm for these type of markets in the past.
There is usually plenty of underlying sentiment change to trigger ample warning for a pull out. If you do get caught in a larger pullback, it will most likely be bought like the 6% pull back in August and the high retested as either a continuation or a failure. Failure from those highs, or new tested highs with underlying market weakness are big red flags, we see none of those in our indicators now. This is a long winded way of saying long term I remain bullish and despite Doug's call that the market has topped I see no evidence in the price action that would make me want to short this market hard. If you have fear just step aside but shorting is like playing chicken with a steam roller.
How our indicators ended up:
NYSE 52 week New Highs:
We still see underneath weakening in the new highs with out price action follow through. Friday's gap opening was enough to give us a green close on the new highs but not enough to change our 5 day momentum. It will take a new high close greater than 126 on Monday to reverse the momentum indicator, which most likely will not happen, and a close below 116 will increase the downward momentum. Any new index highs here without a New High count of 126 is seriously called for questioning.
Zweig Breadth:
Our ZB indicator was doing a great job correcting on Thursday and Friday before the bulls decided to have a little fun. Now we sit mid-stream neutral.
Price Action:
I have posted the TF futures (which are the Russell 2000 eminis) to show this weeks price action since they closed down for the week as an outside index.
Summary:
I see the bull catching its breath for next week, ready to run when the markets come back to full strength after labor day. We have lots and lots of economic news this week and maybe like Doug Kass says we will start to notice that most of the green shoots have been started with miracle grow and the formula is about to run out. This week watch both the news and how the market reacts to the news. Up markets on bad news, tell you something about the sentiment of the players. Down markets on good news, the market is telling you it wants to correct.
Happy Trading
RLT
