Thursday, September 19, 2013

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In one second, the S&P 500 (SPX) did a Fed power move that will prompt re-writes for many chartists. As for TD Sequential, the 4 hour time frame was the outlier from the others that were signaling a possible trend reversal. Thus my focus is now on the 4 hour duration. A 9 count TD Sell Setup should have no problem recording but it may not be ‘perfected’ considering bar 6’s mega-move higher. Therefore, a giveback here without a ‘perfected’ TD Sell Setup should not be surprising. In other words, today’s bar 7’s high may have already indicated at least a short-term top. I won’t discount that an outright reversal can happen but that will have to occur in conjunction with the 4 hour chart on the SPX as it is the best overall chart to judge when overbought conditions have been alleviated. Image

In support of the 4 hour chart, the SPX daily price action is near the TD Trend Factor at 1733.84. If there was a fresh TD Sell Setup, I would place less emphasis on the Trend Factor serving as resistance. But ever since bar 1 was recorded back in early September, the current TD Sell Setup is still active despite reaching a 9 count. Count it as a 9 bar plus 4 since no bearish price flip was recorded.

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The McClellan Oscillator for the SPX is certainly pressing the bullish button with sustained high breadth readings. With yesterday’s move, the readings are pushed into an extreme and supports at least a pullback in the markets. If there is a ‘dark horse’ in this, there have been plenty of times where extreme readings like this have marked a blowoff top. 

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With most indices trading at or near their respective TD Trend Factors, and with the extreme overbought condition on the McClellan Oscillator, I am positioning short but my expectations are still low so following the SPX 4 hour time frame will dictate future action. 

Some additional thoughts. At the FOMC press conference yesterday, I noticed a lack of confidence in Bernanke’s words. It’s as if he is beginning to doubt his own monetary policy. This is a big difference when he was interviewed a few years back on 60 minutes where he was 100% convinced QE will work. Each new record high in the SPX brings a whole new set of problems that builds on the previous one. Let’s hope this ends well. (updated intraday)

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