10-12-12 Comments

IBD has the market in correction but the Market School model is still hanging in there with a +3 count (75% invested.) We have had three recent distribution days on the NASDAQ that occured within a 4 day period. When backtesting the S13 distribution cluster rule, 4 distribution events within an 8-day look back period was marginally better than 3 distribution events within a 5-day look back period. So that many distribution events in a short period is still worrisome and a new distribution event would trigger the S13 sell rule. Additionally a close below 3040.24 just 9 points below yesterday's close would trigger an S12 (close below a marked low).

The attached image is the weekly ES (NASDAQ futures). It shows that the NASDAQ is still in a well defined uptrend channel and has almost tagged the lower trendline. Remaining in this channel is enough for me to continue on with some hope that the pullback will be short lived. The picture on the S&P however may not be so rosy. The rally that began on 7/26 with a FTD is not really a growth stock rally but more of a large cap value oriented rally as can be discerned from the second image. This makes the action of the S&P more important in my opinion and probably why IBD placed the market in correction.

Thinking over the larger picture we have been in a bull market for 3 1/2 years with depending on how you count 3 or 4 up legs. This is about the average extent for a bull market. When I couple this with institutions arranging their portfolios defensively this year I arrive at a possible conclusion that the top is in. Without the Bernanke and election effects I could develop some conviction in this view but won't fight the FED in the short term.


[ATTACH=CONFIG]16129[/ATTACH]
[ATTACH=CONFIG]16130[/ATTACH]