Thursday Pre Open (Wed. Eve)

Nas. Comp dailyLook out below for the metals, as gold's sentiment levels, per DSI at trade-futures.com, are again above 80% bulls.  The last two times that happened were at last August's 1430 swing high, and the Oct. '12 peak near 1760; both DSE sell signals!  This time, DSE has warned, for the past few weeks, that the rise off the Dec. lows near 1195 was corrective looking.  Now, with the sentiment reaching the same overbought extremes as the past two 'big' bounce highs of the past two years, it's time to not just exit longs, but consider entering shorts.

This chart of the Nas. Comp (courtesy of EWI), shows the incredible confidence that there is at least a short term decline that is about to begin.  Every time in the past 18 months that the index has risen to touch the upper channel line, the result has been negative.  More recently, look at how much of the time prices have been above the center line of the channel vs below the center line, like they did in the last few months of '12.  That was the last time prices made the full trip from the upper channel line all the way to the lower channel line.  With four tests in the last six months of this upper line, odds strongly favor not only a decline all the way to the lower line in the near future, but also imply a break below the lower line.

The lower study in the chart shows the horrendous participation of the Nasdaq's broad membership at each of the higher highs of the last nine months.  As the markets roll over in the next few hours to days, this will be the lowest peak of the set; a huge divergence, and bell-ringing warning to complacent longs to get out of Dodge.

That said, we can't rule out an Spx pop to the 1880 +/-10 zone, as the action this week looks sideways (or small wave iv-like).  However, that height is not required.

Yellen is doing some yelling before Congess Thursday, and ears will be pegged to see if the economy's weakness is still blamed on the weather.  Rumors have it that if she slips other scapegoats into the mix, there's gonna be hell to pay.  But, we know that the markets are in position to interpret anything negatively, so either this, or another, reason will be linked to the upcoming decline that is dead ahead.

Note: Vix closed +4.9% on a day with the Dow, Spx, and Nasdaq positive.  That doesn't happen when all is well!

More after the bell...

Thursday Pre Open (Wed. Eve) by

About twwadmin

Ken Goldberg is a Registered Investment Adviser, and is the president and chief market strategist at Trading With Waves. Connect with me on Google+
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