Is it a coincidence that on the day of the State of the Union speech, the market is at the high for the last five years? We have not seen a normal correction for a considerable amount of time and it is time to use common sense to add to our short position at this time. The key of overbought situations is seeing the prices fall in line with the internals. Now we have a stretched rubber band where the internals are weakening while prices are still edging upward. The internals will eventually win and then the resulting snap created is quick, sharp and surprising.
It is important to recognize price pattern changes as soon as possible. If a market is changing a major direction it will first do it with lower highs and lower lows in an abrupt fashion. This means that we are seeing a weakening of the rallying. I have mentioned the internals have been weakening for a considerable amount of time but the prices have not confirmed.
The 30 year bond auction is now history and bonds made a sharp climb as the bond auction news was released. The bonds were oversold short term and now we must see how much fuel is in their tank. It is extremely interesting that the bonds cannot achieve traction. The short term oversold condition has not been able to generate the normal bounce. Secondly, the bounces are slippery meaning that the rallies do not hold gains but generally back off quickly and significantly. The bonds appear to have totally changed their trading pattern.
The heavy lifting of prices Friday was more than the bulls could maintain as once again the slipperiness of the terrain caused the bulls to fall. We retried the 1522 but failed. Do not forget that Monday is President’s Day and the NYSE will be closed.