Weekend Update April 23rd, 2011

Zweig Breadth Thrust at  58.79, which is confirming the move. A rally on Monday will probably push ZBT back above 60.  When this happened recently, the market did a slow roll into last Monday’s low.

4wk New High/Low Ratio at 86.91 and like ZBT is confirming the current move. This only reached 90 back at the end of March and first of April and would probably need a rally on Monday and Tuesday to push this 90.  If the market should rally throughout the week, then this might get up close to 95, which is considered extremely overbought.

$VIX has closed below its lower BB for the past two sessions. Normally this would be a red flag with a ‘sell’ signal coming when $VIX closes back inside the BB and above the high of the candle that preceded the close, which in this case would be 15.83. At the moment I’m leery of this set up mainly because of what happened to $RVX and IWM last week.

If you remember, $RVX closed below its lower BB on 4/15 and then the market fell off a cliff on Monday, the 18th, but this turned out to be a total head fake rather than a legitimate ‘sell’ signal for IWM. I’m thinking the same thing could happen to the $VIX and $SPX. Time will tell.

Sell in May and go away?

There have been summer sell offs in six of the last eight years,  going back to 2003. These pull backs began anytime between the 1st of May and mid-June. Some were minor and some, like the drop in 2008, were substantial.  On the far left side of the chart below of IWM, you can see two more summer pull backs. All of this suggests that there may be a pull back of one degree or another starting some time in the next 30-40 days, if not sooner.

IWM Monthly Chart:

I mentioned the $RUT monthly chart a few weeks back and the chart below shows what I’m looking at. If you notice on the chart the number of red arrows that line up with times when the RSI has tagged or pushed above 70.  Most of those situations have resulted in some kind of consolidation period or pull back lasting for  varying amounts of time. With the RSI now at 67, it’s going to take quite a rally from current levels to push the RSI up to 70. Unless IWM screams higher before next Friday, that isn’t going to happen in April. But it may happen in May, or not. Just something to watch.

Next weekend I will put up my last post and go dark.

GL in the week ahead.