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It looks like I’m not the only one getting nervous about this market as it reaches its January 2010 highs once again. We have several data points gathering that paint a cautionary picture. For starters, retail options traders are reaching for the sky, ignoring risk. Retail investor sentiment is growing equally bold with the bulls outnumbering the bears by almost 2 to 1.
As a result, so much money is flowing into upside volume on the NYSE that all short term moving averages of upside volume to total volume are reaching an extreme. Surprisingly, according to research from both SentimenTrader and Bespoke on this level of upside volume, the market does OK going forward but nothing spectacular either.
Finally, we have an update from QuantDNA which is a bit cryptic because it relies on a proprietary indicator of theirs based on exhaustion:
History has shown that highly predictive sell signals are better viewed as a process rather than an event, so we have been processing a lot of information over the past few days in that light. The market action over the past few sessions has caused many of our proprietary indicators to fire off sell signals. Our proprietary work has primarily concentrated on two general areas…market structure and momentum and exhaustion patterns.
The charts below feature one particular exhaustion pattern that has been one of our favorites due to it balance between frequency and accuracy. It is certainly not infallible but represents a solid indication of a market’s condition on a risk-adjusted basis. As always…no guarantees, only probabilities.
Make of that what you will.
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