5/15 Weekly Commentary

I'm holding short ETFs and funds.  See Trade History.
Friday/Monday are the raw I1 formal sell signal dates as stated in the 2011 Annual Forecast.

I have been using the 30-day I1 to get on the broad trend change. 

I1 is validated by the cycle generator, as shown for the DJI:

Last week saw DJ futures validate the DJI cash critical support M/A break by breaking their 90-minute M/A, rally back to test it, and fail by falling to the bottom of the trading range.  DJ, SP, and ND are all at the bottom of their respective trading ranges.  This breakout would signify the first technical confirmation of an emerging intermediate downtrend.

Looking at SP futures, a break of support is often preceeded by triangles as the bears turn back rallies off of the support level.  SP has 4 of 5 waves complete within a building triangle.

At the end of any extended bull move the number of trend believers is large and buy on dips and support.  Breaking this one will break confidence and lead to more selling.  The Fed is due to terminate QE2 at the end of June but I do not believe that the stock market will wait that long.  There is already talk in the mainstream about the negative effects for the stock market at the end of QE2.  The smart money is ahead of the curve.
The bond market will peak after a final rally/breakout here and would surprise traders with another decline. 

The US1 bond sentiment gauge went up to an abormally high level corresponding with this recovery rally.  When it fell back below 2.5 that indicated that the high bullish sentiment was spent.  With the Fed buying bonds through June short bonds is still a higher-risk trade but I think it's worthwhile for the next couple of weeks, at least.

The dollar has rallied up to initial weekly resistance.  A retracement down here would coincide with a stock market final mini-rally off of support and an upward retracement in precious metals.