Re: [RT] Markets

Sue, I still have significant divergences although the breadth model divergences are falling away as the rally powers higher. Yesterday, the NYSE A/D volume model (to which I give a great deal of weight) confirmed the rally by making a higher high. Rally has also been powering right through key ST resistance levels such as the 127% and 162% retracments of declines. Finally, we have all major indexes into new intermediate term high territory.

Attached chart of ES daily shows price arriving early (ahead of first timing mark) and powering through the first MOB and arriving early and in middle of second MOB. The 127% target is at 1277 and 162% at 1306. I pretty routinely short 162% retracements, especially when move has been fast. If price gets there in the next 5-10 days I will short 1300 heavily. Otherwise, I will be very selective about placing shorts ... the trend is still up.

Earl

----- Original Message -----

From: sue crew

To: realtraders@xxxxxxxxxxxxxxx

Sent: Tuesday, November 22, 2005 12:34 AM

Subject: Re: [RT] Markets

so Earl do we get short equities now?

----- Original Message -----

From: EAdamy

To: Realtraders

Sent: Friday, November 18, 2005 1:20 AM

Subject: [RT] Markets

My work is throwing off some serious warnings. Attached are screen shots of my NYSE and NASDAQ breadth models. The most serious divergences are in the new Hi-Lo model (upper right) where we have a 5 month series of lower highs even as price has been rallying. I give A/D volume (lower right) a lot more weight than A/D issues (lower left). NYSE A/D volume broke out above previous pivots highs (green horizontal line) on 10/31 and NASDAQ 11/2 nicely confirming the rally. Subsequently we have had lower highs even as price has posted higher highs.

Turning to risk measures, I keep an eye on the spreads between treasury and corporate and treasury and high yield. Widening spreads are giving warning of a negative change in investor willingness to take on risk. Confirming this is the behavior of VIX which broke out of the declining channel on 10/7. While this rally has brought a nice decline in VIX (investors willing to accept more risk) the decline has not come close to the lows established in July. Maintaining and expanding P/E's depends upon investors being willing to accept increasing levels of risk. There is now a significant divergence giving us warning that investors are less willing to accept risk.

Lastly, I include a weekly chart of the NYSE which shows a very clear rising wedge pattern. Rising (and falling) wedge patterns are generally terminal to the trend. W/O 10/7 gave the first warning when the shorter (blue) lower trendline was broken and confirmed on 10/14 when the longer (gray) lower trendline was broken. We would generally expect a retest of the trendlines. We have gotten that test with price rallying back into the longer wedge on 11/4. A failure which fails can be a very good reversal signal so the question at hand is this rally back into the wedge a sign of a new bull leg? The internals discussed above suggest that it is not.

Earl

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