long SRS @ 20.8

long .GSRG @ 2.80

Equities vs Bonds

In financial markets, there are two essential asset groups the big money moves between: Bonds and Equities. Whichever offers less risk attracts inflow.

One of the intermediate term indicators I follow is 19 day RSI of NDX/TLT ratio. When this ratio exceeds 70, equities usually top out for at least short term, mostly intermediate term as money moves from equities to bonds. We have this situation at this juncture. The opposite happens when this ratio is oversold.

Congestion continues...

Continuing congestion is still giving the both sides hard time but the intermediate term writing has been put on the wall a while ago.

Beat goes on

As long as the market is contained by those trend structures, distribution will eventually prevail and the current congestion will give a way to the new IT downtrend.

Tops are process, this process may take some time, the longer it takes, the stronger and longer the sell off will be. If I have to take a wild guess, this action may continue until 200DMA on SPX converges to the price close enough while the index is contained by the corresponding IT and LT trends.

However if you are a ST player, I suggest you to keep the following two charts in mind for the next day or two. They are showing extreme readings that usually coincided with ST, sometimes IT tops.

ISEE equities-only closed at 199

CBOE P/C ratio closed at 0.54 while 10DMA of OEX P/C has been flashing an intermediate term sell as posted before

Daily PCs:


10DMA of dailies:

Big contract btw 901-904

has just been shorted wildly. Don't know how it may affect the index at this point but from the past observations, we may see some reversal quickly.

Banks and Financials

Today's gap down was quite predictable according to the trend structures on XLF. Not only the first 60 day-120min chart but the second weekly chart also implies intermediate term sell off as it gaped below the TL on weekly.


XLF 2 year/weekly


XLF 2 months/120min

Boomerang effect

Coming weeks will be important for the long term. I do not mean to tell you about the expected events or developments like possible bankruptcy of some states, recurring liquidity problem of banks, credit card or commercial real estate default related problems. Certainly no one can predict when they exactly happen.

I will talk about what I see on the charts and try to give my perspective. As Atilla mentioned several times in the last few weeks, major US indices and sectors along with several emerging market indices have achieved their intermediate term targets projected by LT xTrend studies.
Among those indices, there is one that I always follow closely; VIX. As you may recall I had bought VIX 30 calls when VIX was trading below 30, testing lifetime rising xTrends last week. The reaction was powerful, the calls doubled quickly.
It was interesting to observe the fact that despite SPX rallied and VIX dropped further, those calls didn't loose much value, indicated that implied volatility spiked across the market.

This was the last piece in the puzzle after several weeks of topping action. I believe we are on the verge of a broad sell off which should contain lagging commodity stocks as well.