8-16-2015 Comments

Every once in a while I will stare at a chart and wonder if the market has topped. That question asked in recent times has always been answered by the market making yet another high. Today when I look at the S&P500 daily chart I see the following:

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The S&P has been supported at the 120-day ema. The 120-day ema has no fundamental basis, the line was fitted to the price action of the index. The blue circles show some of the support action with one big glaring failure in the middle of the chart. Now however in the red circles I am witnessing perhaps resistance at this average. I also notice the possibility of a rounding top shown by the red dashed line. So the question has returned: has the market topped? This will become clear some day in the future by looking in the rear view mirror.

What is also clear is possible topping action of some big leading stocks. The AMBA chart shows a probable climax run 9-weeks ago when it simultaneously broke an upper channel line. The action following the climax show 3-weeks down followed by 2-weeks up to a new high. This pattern has been a topping pattern in the past (such as NFLX in 2011).

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SKX is also showing a possible current climax run.

Topping patterns in the big leaders of a rally often are associated with a topping market...

In the event that the market bounces to a new high again I ran a screen last Wednesday (possible capitulation day). When I see a possible market bottom I run a screen designed to find stocks making a new highs in relative strength (RS) when the market is selling off. The reason for this is to find possible new leadership. When I ran the screen 16 stocks made the list out of more than 7000 stocks in the database. I found five of the 16 stocks in the building sector: DHI, LII, MAS, MHK, and NVR. I would rather have seen a real sizable market correction to do this analysis so the thought that housing is going to lead a new market rally phase should be taken with a grain of salt.

In the mean time I am brushing up on my sell rules and short sale rules in the event that my first question is answered in the affirmative.