There is sufficient evidence to indicate that the general market has been correcting through time. The issue I see moving into the next couple of weeks is will this translate into a correction through price? Market breadth trends are weak enough that I considered it worth taking the short side through an exploratory position in the SQQQ and TZA. The charts offer a clear line if I'm wrong and a clear line of confirmation if I'm proven correct. With earnings season beginning on the 24th I expect one of these sides to resolve.
One of the breadth trends I pay attention to, the number of stocks over a ten day period that have had more break outs to break downs has been mostly flat to slightly negative. It's much simpler to trade a stock market than a market of stocks, and the later type of market has been the dominant force over the past month.
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| Buying-Selling |
On a higher time frame, one of the breadth metrics I tally has been predominately negative over the past month. So, not only is buying to selling been hovering in more of a trough zone than peak zone, on a higher time frame this has been even more pronounced.
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| Secondary Ratio |
One time frame up the story is becoming consistent across three time horizons.
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| Primary Ratio |
Earlier this week I posted three charts using a GMMA and 2-Month momentum time frame on the IWM, SPY, and QQQ noting three distinct periods that I assess as prime for aggressive trading, cautious trading, or short oriented trading. By the close of this week all three indexes have shifted to short oriented trading.
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| IWM |
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| SPY |
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| QQQ |
This week also closed with with expanding lows on a one and three month time frame which is close to flipping across all higher time frames as well.
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| New Highs : New Lows |
This week I also took some notes regarding the IWM, SPY and QQQ. The critical price zone that I am paying attention to is the recent local low. A break below this low and I fully expect the market to begin correcting through price. My expectation would be 5-10% retracement from recent all time highs. A break out above the recent lower high is where I consider my assessment to be incorrect and opposite the markets potential.
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| IWM |
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| SPY |
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| QQQ |
The current market structure is beginning to shift from ambiguous to clearly negative. Personally, I find weak markets untrustworthy. Not only are they difficult to trade, but in addition weak markets have the potential of having the rug pulled out from under them. Perhaps earnings season will be the catalyst and spark to renew the upside, but any misses will be severely punished and could be potentially infectious. From my analysis the market is offering an opportunity to the short side with a break of the recent lows as confirmation and perhaps the path of last resistance trade.
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