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The State of the Trend

Last week the extremely overbought levels of the weekly market breadth indicator gave us an early warning that the trend is about to change. This was confirmed on Monday when the Vix market timing system gave a sell signal:

SPY versus VIX Chart
Chart courtesy of OT Pairs

Using Vix as a market timing tool has a long tradition, and now iPhone/iPad users can monitor it on their devices. The solution we're proposing has the added benefit that it can be applied to other symbols as well. For instance, using the QQQ/QQV pair, we notice that the Qs haven't succumbed to the selling pressure in the broader market, and still remain on a buy signal (although barely):

QQQ versus QQV Chart

Which brings us to the logical question: where's the market headed next?

The weekly market breadth indicator remains overbought and is just turning south, suggesting a prolonged period of sideways/down market action:

SPX Chart
Larger Image

The circus in Washington continues unabated. But rather than predict when it may end, and what implications it may have for the markets, we'll wait and defer to our TA tools to tell us when it's time to switch gears.

Turning to gold and silver, we note that gold continues to be doing better on a relative strength basis, and is trading again above the 50% retracement level:

SPDR Gold Trust Weekly Chart
Larger Image

Nevertheless, both GLD and SLV still remain within the confines of the downsloping channels:

iShares Silver Trust Weekly Chart
Larger Image


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