Weekly Trend and Trade Review
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The Alpha King Trend indicator remains in buy mode, with the accumulation/distribution profile also remaining positive, with little in the way of distribution selling, though breakout volume has also been very lacking. The leadership profile is weakening fast, triggering yet another Hindenburg Omen signal, with 445 new highs versus 74 new lows. Hindenburg Omen signals coming one after the other are signs of distribution selling seen at MAJOR bull market peaks.
Trends: semis +, transports +, small caps +, energy +, China -, gold -, UK +, financials +, copper -, high yield -, munis -, US bonds -
The trend momentum power rating remains a mediocre 70% bull.
The 4% rule remains positive, while Federal Reserve policy remains very accommodative. The VIX volatility indicator closed the week at 11.98, showing the most extreme close since the stock market peaks in early 2012. The bearish Elliott Wave count is on deck to come into play once the current rally falters and reverses.
The big picture remains unchanged, with the blow off rally yet to show definitive signs of ending, though showing numerous signs buying is drying up and a bear turn about to strike. The first chart below shows the Dow Industrials continuing its path toward the upper trend-line of an expanding triangle, and what happens next – once the blow off rally falters and reverses – is the dotted red line. More importantly, this is also the view of the bull/bear cycle, which needs one significant win for the bears to signal the next Great Bear market has begun. Update continues below chart....
While the correction expected in #2 came later than expected, and was shallower going into the expected #3 low for high risk blow off bull phases, we are perfectly aligned for the #4 peak to land right here. Whether the bulls can survive the correction into point #5 will dictate whether 2013 ends with new highs going into 2014, versus entering a new bear market. Update continues below chart....
The final charts suggests the bull market is about to end and the next Great Bear market about to begin, as the current NASDAQ (white lines) matches up to the purple line of 1987, though a little sooner than optimal, due to the minimal corrections this year than would be expected. This will be confirmed when the white line in the upper contrarian part of the chart leaves the red circle and the NASDAQ breaks below the dotted red breakout line.
I would be an eager buyer ahead of an end of year rally if the ADX line is trending down by the time the stock market becomes oversold on an intermediate term basis during the next correction. For now cash is king for conservative investors, while aggressive investors can be positioned short here. Risk for the bulls is scary high, and an outright crash would be a normal expectation with this kind of set-up as everyone tries to head for the exits at the same time, which is why I remain short at this juncture as we await the final nail placed in the bull coffin. The end is nigh....
401K investors should be invested in a money market fund, preferably a US Treasury only one.
Chief Trading Strategist