LMP April 2013

Me is back in town.
The financial media celebrated the new high of SPX, everywhere, all over the place. Even I thought the divergence between DJI and SPX is solved for a while. BUT hold on a minute, when I check the charts, it tells a totally different story. SPX did record the highest close price, but it did not close above the October 11, 2007 high at 1576.09.

 
From a technical perspective, it is easy to understand the celebration was a bit premature since there is a difference. Some selling at the old high could be expected so now the challenge is to close above that old high. My reading is SPX has to close higher than 1576 this month, or the correction will come in no time. If SPX cannot hold 1530 area, you need to think of hedge your long position.

Daily price momentum oscillators have been diverging bearishly in recent weeks while price indexes rose to higher highs. Momentum oscillators have remained below their 2011-2012 highs and below their highs of late January. Bearishly diverging momentum is a problem because momentum is a leading indicator of price. This is still a fact worth noting, even though the bullish majority has been ignoring it in the first quarter just ended.

From an Elliott perspective, this is the third momentum wave with a well-defined upward sloping trendline confirmed by public attention from news media reports about the new highs. It is during third waves that everybody wishes they were long the market much like last year. The fourth wave, called profit taking, is the counter trend correction so be prepared with a hedging plan since today is the first day of April.

Monthly LMP update:
As disclosed in the previous post, I exit the market on 3/13. I don’t plan to get back in this month, even though all sectors except commodity are showing hold signal. This is not the time to bet anything.
Also I think the impulsive movement is over. Now is a better time to think of individual stocks or ETFs to catch alpha. Starting from this month I am going to post some of my picks.