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WALL STREET CRAPS MARKET OBSERVATIONS FOR JULY 4, 2012

July 4th, 2012

MARKET OBSERVATIONS FOR JULY 4, 2012: The stock market rally continued its move upwards climbing the proverbial “Wall of Worry.” It is now reaching an overbought area of resistance and is not likely to move much further on the upside without some consolidation first over the next couple of weeks.

The McClellan Summation Index continues to give a clear reading that shows a strong rally based on breadth. This indicator cuts through the market B.S. of news and opinions and lets investors see and know whether the Bulls or the Bears are in control. Right now, the Bulls are running the show!

Other key market indicators show the following:

  • Investor Sentiment – is close to being in the area of “Extreme Optimism”
  • NYSE Breadth Oscillator – clearly overextended and due for a breather
  • Nasdaq Breadth Oscillator – not as overextended as the NYSE breadth indicator
  • Risk On/Risk Off Indicator – confirms the Summation Index and indicates a major move from safety to risk. This could be a major shift from the safety of Treasury Bonds to riskier asset classes such as corporate high-yield bonds or equities.

For now, the best advice is to remain on the sidelines getting ready for a near term correction in the stock market. After a week of consolidation or lower prices, you can reasonably expect a retest of the recent highs. We will have to reassess that top when it comes. But in the correction, watch the NYSE Breadth Oscillator and Nasdaq Breadth Oscillator for oversold readings and a possible short term buying trade.

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In regards to Apple (AAPL), the stock took off to the upside despite what many would consider “bad news” concerning competition from Microsoft and Google with tablet computers. The Money Flow Indicator has a reading of 52 and has hardly moved up in the last rally phase.  The “Full Stochastics Indicator” and the “Ultimate Indicator” have much more room to the upside and both indicate that a retest of the old highs around 644 is a distinct possibility now.

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