We entered the day with a weak form risk off tone as discussed in the Morning Huddle. Oil remained weak throughout the day closing down 6.8%. North American markets gapped down at the open but slowly grinded higher throughout the day. Closing above the 1928-1921 watch out point but still just below the 1950 resistance structure.
The $SPX closed almost flat but gave up most of the gains it had in the last 10 minutes of the trade. This created an indecision candlestick with slowing momentum into the 1950 resistance structure.
For a look at today’s intra-day action review the action journal here
Is it time to panic…not necessarily. Let’s review our short term breadth and sentiment indicators to gauge if this move has some more room to go.
First a check of the short to mid term McClellan oscillator gives us a relatively high reading of +167. It is now in overbought territory but can remain there for a while.
What you need to watch is whether the S&P can push higher above 1950. The McClellan oscillator confirming the strength with a higher reading would be a good sign of market breadth in the rally.
Next a look at short term market sentiment as measured by the Total Put/Call ratio. The sentiment gauge is very near A Bearish extreme. I use this as a contrarian indicator, when traders are buying more calls the gauge reaches the red bearish reversal line (below 1.0).
Another push upwards for the markets past 1950 will put the sentiment gauge even further into a bearish reversal zone as traders start to get too bullish and continue to load up on calls.
If you have been following my posts you will remember that there is high likelihood the long term uptrend is broken and this rally will make a lower high below 2115.
If you have longer term positions it would be prudent to look for good opportunities to de-risk unless you can stomach the upcoming volatility.
2016 is going to be a year for active investors and traders as the markets try to grapple with the end of Quantitative easing and low potentially rising interests rates in US. A return to market normalcy is going to be volatile as we move from these uncharted waters.
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