Project Description

2006 SPX Market High

Advice Written: 3 May 2006 MDSnews Investment Advisory

Context: Short-term trading

Terminology: Communicating to experienced investors, familiar with indicators and signals mentioned

I would be a little cautious of the break up that is about to happen in the Dow Jones Industrial Average and the S&P 500. There is a similar market breadth that caused the failure in December 2004 January 2005. The put call ratio has launched into an extreme bearish territory, indicating the Institutions are hedging the downside.

The trend of the New York Trin is forming a bottoming pattern. There is a negative divergence in NH/HL and last of all the NASDAQ index is lagging.

The above indicators suggested the current leg up from the 2005 October low is running out of steam. A good scenario would be that the S&P 500 breaks out therefore drawing all the retail participants into the move. A failure of the breakout would then provide a shock to buyers and very high probability leg to the downside fuelled by all the retail market participants exiting their losing positions.

Reproduced with permission