Impulsive selling gripped the market yesterday afternoon for the first time in quite awhile and it came on the heels of a few warnings signs that I passed on to EarningsBeats.com members earlier this week. First, the accumulation/distribution line, which has been a HUGE friend of the bulls since early March, has now turned more bearish. Here's the chart:
Next, we've seen a huge turnaround in sentiment. The options clan has grown much more bullish and with options expiring this Friday, that could be a big problem as well:
There is no guarantee that increased complacency will mark a top, as it didn't work every time above. However, it's definitely a reason to grow more cautious whenever the $CPCE's 5 day SMA reaches 0.575. We closed just below that level yesterday.
Finally, we saw impulsive selling yesterday afternoon as the Volatility Index ("VIX") spiked. It's always a time to grow more nervous when that occurs. Here's a chart of the NASDAQ 100 ($NDX) breaking below its 20 hour EMA, with a test of it earlier:
In a webinar yesterday afternoon with members, I discussed the possibility of a morning rally to test the now-declining 20 hour EMA. That would be the best opportunity to short stocks from a reward to risk perspective because stops could be kept fairly close in the event the bull market confounded everyone and continued to rise. Also, many stocks are WELL ABOVE max pain levels so a selloff later this week or into next would not be a surprise at all.
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Happy trading!
Tom
