Tuesday, May 21, 2013

5/21/13: Slowly but surely, we are inching towards the top

I remain under the presumption that we have < 1.5 weeks remaining in this rally.  I am expecting a top first week of June, not the end of May.

My belief is to continue buying the dips into the last week of May and to start phasing out and enter into short positions by early June.  If thesis holds true, it should be a fast and jolting drop but it is NOT the top.

Slowly but surely, indicators are starting to show cracks in this bull's armor.
1.  First we have the RSI negative divergences but any seasoned trader knows that these don't work very well at tops.  At bottoms, perhaps, but not at tops.  The novice trader will use RSIs as a minimal starting point for calling for negative divergences but from experience, these are not reliable.  They are instead reliable to me in terms of getting to know what the less experienced trader is looking at.

2.  Second, we have ADX divergences but the ADX line itself is still above 30.  I ignore negative divergences if this occurs since there is quite the likelihood of continued momentum.

3.  Now for the third point, we FINALLY see a break in the OBV trend.  It took awhile but now this up channel has broken in terms of volume.  Volume leads price but when does price follow?  This tells me that the rally is almost over.  It's almost like a canary in the coal mine.  It tells bigger traders to start phasing out of positions.


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