Friday, May 20, 2011

5/20 Weekly Commentary

The stock market operated on a DJI critical M/A sell signal since Tuesday.  It rallied back to this M/A and found resistance there Wednesday, Thursday, and Friday.

On Friday a decline broke the SP futures 30-minute M/A at 1333.  The market rallied back to this M/A where I bought 2% SDS at 20.30 on a pre-staged order.  I was out working on connecting up a water tank when the 30-minute M/A was hit. 
If the market continues the decline Monday then I'll be convinced that the lead that has existed in raw I1 no longer exists. 
However, the 5 up remains in the SP and DJ futures, so the decline today could be the correction of the rally since Tuesday and another wave up remains.  I expected this wave b to be a triangle, which is common for b waves, but the market broke downward making wave b a double zigzag.  If the market does rally Monday then I'll expect the top on Wednesday. 

The longer-view of I1 peaked early May and has been declining ever since.  However, this 30-day average of I1 peaked at a high level and historically this allows for a secondary rally until it crosses under 6.5.  This occurs in 5 more sessions .  This is the end of the line for the stock market rally and does not imply rally until this occurs.  It does imply that the meat of the decline lies beyond the crossover. 

Earlier this year I posted a new series which reflected I1 components at abnormally high and low levels.  This was embodied in a diffusion index and a rule set was adopted which rendered signals on a longer term than I1.  This series, Longer Signals using Time Elevations, is still valid. and will generate a sell signal June 3.  I've improved upon this raw series by running a 15-day average with a new rule set.  This new series peaks and troughs with the market.  The latest chart for the new series shows a peak occurring at this time.

The bottom line is that the stock market is on the verge of a major decline.  I'll be increasing exposure this week.
One reason that I believe that a rally will develop early this week is that metals look primed for a bounce to relieve the dramatic oversold condition.  This bounce will drag stocks with it.  The PM1 longer-term forward sentiment gauge remains pointed firmly down.  However there is a cycle in silver that still has a couple of days up left and gold looks like a new high this week with a strong cycle input.

At this point I'm holding back going heavily short the stock market.  I still have my short mutual funds and 2% SDS. The rollover to a substantial decline is imminent and I'm playing brinksmanship.

1 comment:

  1. Steve,

    Do you have any thoughts on the timing of the silver retracement to $39 and how that currently correlates with your PM1 gauge?