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There is Something Rotten in Denmark

5/9/2014 5:50:08 AM

Good morning Traders,

Underlying the market price action, there is a lot going on. First, since it is Friday, we look at our money flow updates.

Cumulative Equity Money Flows Chart

Second, here is the weekly reading from equity money flow, which we believe is a contrary indicator - meaning as money flow reaches a peak or a trough, it is a sell or buy in the market, respectively.

Equity Fund Money Flows Chart

Keeping with the sentiment theme:

Equity Put/Call Ratio Chart

We are at a relative low, but not a historic low. Because of the functioning of the market, the more bearish people get, the more bullish potential energy is building in the market to rally. So in the short term, I would say that this is bullish.

QQQ versus SPY Relative Strength Spread Chart

Relatively speaking, the QQQs are on a sell signal compared to the SPY. This, especially from a low level, tends to be more bearish. Remember, all these charts are available as an individual subscription and if you write your own newsletter, you can subscribe and publish these charts as part of your articles. Visit www.stockbarometer.com to learn more.

And finally, the barometer.

Daily Stock Barometer primary System Chart

There is no doubt about it, the conditions are ripe for a sell off and the triggering of the head and shoulders top in the QQQ. The internals on the Nasdaq side are SO bearish compared to the NYSE. So we remain in Sell Mode, looking for price action to break down. I'm not long term bearish - I'm looking for a sharp move lower - and maybe not even a break of the head and shoulder pattern as the right shoulder could form a more complex pattern.

That being said, the level of fear is building, making the timing of this sell a little suspect. I prefer to see the market sell off on complacency, not fear. That doesn't mean that the market can't sell off, just that this is where it gets tricky - as a bullish catalyst could light the fuse of fear in the market, which would materialize as a strong advance of short covering. And if the fear has to clear out of the market, it would be like a fire running until all the combustibles are spent.

Regards,

 

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