WALL STREET CRAPS MARKET OBSERVATIONS FOR JANUARY 13, 2013
MARKET OBSERVATIONS FOR JANUARY 13, 2013: The stock market is continuing its rally from the “fiscal cliff” resolution. The internal indicators show that this last week has risen despite weakness in breadth. With a mixed bag of conflicting signals in price, sentiment, and breadth, a wise trader should be ready to “buy the dips” and “sell the rips.” Last Friday’s close was the second consecutive “new high” in this current rally. I would not be surprised if this current phase tops out either Tuesday or Wednesday in the coming week. That would be followed by an initial correction and a short, sharp retest of the highs. That kind of action will reveal much about the staying power of this rally. There is a decent chance that this market could surprise many by having much further to go on the upside.
Key market indicators show the following:
- Investor Sentiment – is only slightly overbought which is still neutral
- Fear & Greed Index – is at 85 which is in “Extreme Greed” territory
- NYSE Breadth Oscillator – Ultimate Indicator reading of 50 which is neutral
- Nasdaq Breadth Oscillator – Ultimate Indicator reading of 42 which surprisingly is moving towards oversold
- Risk On/Risk Off Indicator – Ultimate Indicator reading of 60 & headed down to a buying opportunity
For now, my advice is to remain on the sidelines and let the market set itself up for its next big move. A short-term top could easily occur by the middle of next week. The following dip might be one in which to take positions if the breadth indicators become oversold (very possible). Right now, the overall market is a bit too extended. This almost always leads to a correction in order for the market to get healthy again. That correction may only be a short one so be ready to get in on the action.
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As for Apple (AAPL), the stock has drifted back down towards it base around 515-500. The RSI, Ultimate Indicator, and Money Flow Indicators do not show that it is a time to buy yet. For those who only follow the external price action of the stock, it is tempting to buy at the current levels. But to me, it seems like too many investors are “wishing” for the stock to move up because they are trapped at much higher purchase prices. This makes me think that the stock needs another down-leg or news scare in order to shake out the weak hands. Most current holders of the stock are now disappointed that it has not participated much in this year’s rally and the expiration of tax-selling. That disappointment translates into “nervous hands” and “scared money” which will cause those people to get emotional at precisely the wrong time. Keep this in mind and approach Apple cautiously from a contrary trading perspective.
