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WALL STREET CRAPS MARKET OBSERVATION FOR JANUARY 6, 2013

January 6th, 2013

MARKET OBSERVATIONS FOR JANUARY 6, 2013: The stock market’s late December oversold breadth condition set itself up for last week’s sharp news-related rally. But sentiment readings should put a lid on anymore sizable upside action. A few more up-days should also move the breadth oscillators into “sell” mode. Also the “Risk On/Risk Off Indicator” shows that the “Risk On trade” has extended to its normal range again limiting much upside action. With the upside being limited, this is not a time to be buying and one to be moving to the sidelines (and waiting for the next high-probability opportunity).

Key market indicators show the following:

For now, my advice is to stay of the sidelines and let the market set itself up for its next big move. Last week’s update presented a scenario for taking advantage of the resolution of the “fiscal cliff,” but you would have had to move quickly on New Year’s Eve morning in order to capitalize on it. In addition, last week’s rally points to another trading tip which is “don’t watch breaking news while you’re trading” because you’ll get easily talked out of making a move (which happened to me!!!)

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As for Apple (AAPL), the stock moved up sharply after a positive article in Baron’s over last weekend, thereby blowing our chances to buy it on a quiet New Year’s Eve trading morning. But by midweek, it had hit its 250-day moving average around 555. From here, it could still have another leg down but I’ll be watching its internal signals (Money Flow, Ultimate Indicator, RSI) for clues more so than its external price moves. So overall, Apple is in “no man’s land” between 555 and 500 and is setting itself up for its next big move. This could come in another 10 days or so at the earliest.

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