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Market Update

12/5/2013 5:44:02 AM

Here's a stock market update.

Good morning traders,

Wednesday's trade mid day was a little concerning as the Qs were pushing on lows - but that changed and the markets rallied a bit into the close - again, more so on the NASDAQ than on the NYSE - as the relative out performance continues.

One of the issues that existed just prior to the 2000 crash was everyone piling into the same stocks. All these stocks rallied until everyone was in. When there was no one left to buy, a selling vacuum was created. And what goes straight up, tends to come straight down. I'm not saying we're anywhere near where we were back in 2000. But the parabolic nature of the move continues. So I continue to expect a larger sell off - if not now - then at the end of this year.

As for the barometer, it's still pointing lower, but has not confirmed a sell signal. The internals of the market are correcting, however, the sentiment of the market is remaining high with price action. So we're still in a complacent market - but could also see another thrust higher.

Daily Stock Barometer Primary System Chart

The above is a short term view of the barometer. Periodically I like to view the longer term:

NASDAQ Stock Barometer Chart

The long term shows we're not near a significant bottoming level - so another trust to new highs would be muted - we'll see more individual stock action than index action.

When I talk about market sentiment, here's one way to view it:

Equity Put/Call Ratio Chart

When the market sells off, you'd want to see the fear growing (this line dropping). But after 4 days down on the NYSE, there's no fear. That suggests to me that we have more downside to come - but given the relative strength in the Nasdaq, the Qs may not drop too much...

Another simple way to look at where we are is a 5 day view of new highs/new lows:

New High/Low Indicator Chart

This suggests more weakness into mid December. If people start to get a sense to take profits before year end, then we'll see more selling. But there is a tendency for tax trading to take place... Why take profits now, then you have to pay your taxes next year. Wait until the new year, which causes a January tax sell off - which is where I'm leaning.

On the bullish front, we're seeing levels of sell pressure intra day that we haven't seen in a while. So here's one internal measure that's bullish:

SPY Buy and Sell Signals Chart

Big picture, as we approach our year end key reversal date, the likelihood of a continuation of the advance remains high - as market internals correct, but market sentiment doesn't - which leaves the market vulnerable. Selling will create more selling until we see an extreme - and that's what I expect if selling picks up as we approach year end.



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