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Perma Bear

5/28/2014 5:52:46 AM

Good morning Traders,

As we look at the resolution of the market divergence between the QQQ and SPY (Nasdaq and NYSE) playing out, if you're thinking about jumping in, here are some charts for your review.

QQQ versus SPY relative Strength Spread Chart

The circled period on the left is another broadening top pattern, which you can see the resolution is below the low of the pattern. I won't be so bold to predict the same action, and I won't be so bold to say that action has to happen right now. The market makes large moves then tends to hang around - which frustrates traders...

Looking a the internals, this is to be expected. The question is how the market will react. This level of reading suggests at a minimum the market will digest these gains for a bit after a little more upside...

QQQ Advancing Volume minus Declining Volume Chart

Our QQQ Trader service was stopped out before this advance, which is frustrating.

QQQ Daily Stock Barometer Chart

So why not jump to the long side here? We've done a lot of work over the past year to give you expected future returns from relative levels of our indicators. This suggests that buyers of the market here will not be rewarded, in fact, they could see losses of up to 5% over a month's time.

QQQ Trader 1-Month Expected Returns Chart

And finally, I'll leave you with an indicator that measures market efficiency. I always say you never know what you're going to get in the market, but you know when not to chase a trade. And that's where we are here.

NASDAQ Barometer Efficiency Chart

These charts make part of all our research that we apply to our trading of not only the QQQs, but USO (which we have some long CALLS, GLD, which we are LONG PUTS, and Natural Gas, which we are long PUTS (because of their relative action with oil.

When the market gets to this level, we'll start issuing covered call recommendations and if we start to see more extreme sentiment, we'll issue our top PUT trades in our SOS service. We're getting close to that point, but remember the markets like to hang around for a while, AND markets like to suck in as many investors before they go into a correction - so patience is a virtue here.

Regards,

 

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