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The stock market continues to run higher. It is now a near certainty that the bottom has been put it for this buy signal and within the next few days our system is likely to trigger a sell signal.
(It is important to note that today's close was around 45.04 on QQQQ and that the close on the chart below is inaccurate.)
Of the three ETFs we follow, QQQQ looks the most interesting right now. Generally speaking, during an uptrend the market will have the cycle of moving three steps forward for every one to two steps back. From the end of December to the beginning of January the market moved higher. We triggered a sell signal and the market pulled back two of the three steps. Currently QQQQ has not regained the ground from the previous decline, let alone moved up an additional step. This suggests that QQQQ will break its 2007 highs and move beyond them by at least one to two percent before a pullback. This leads us with three possibilities:
1) as our system is becoming closer to overbought, it is possible that a sell signal will be triggered before the top is in for QQQQ.
2) QQQQ will "rest" around the 44.50-45.00 area for a day or two before the push to new highs. This will allow our system to neutralize and allow for higher prices before a sell signal is issued.
3) The coming day or two will be very powerful and allow our system to trigger a sell signal with QQQQ clearly above 2007 highs.
There are three scenarios as the chart of QQQQ is less clear than either the chart of SMH or IWM right now.
We believe that SMH is poised for a move higher. Today's low hit its 50 day moving average before bouncing higher. We feel that SMH will either find resistance and stop at 2007 highs this buy signal or push to the 35.50 area. Currently, we do not anticipate a break above the October 2006 high this signal.
The chart of IWM is most clear. Considering the base that was formed between 76 and 79, we feel that IWM is extremely close to peaking. Today's close was the same distance (3 points above 79=82) as the height of the base (79-76=3). This leads us to believe that IWM has little strength left before a mid-term pullback.
As always, our mid-term system will dictate when the next sell signal is triggered. If tomorrow is a strong day it is possible we will have a sell signal issued at the close. If the next two days are strong, it is inevitable that we will have a sell signal. A day or two of "relaxation" (small decline or sideways movement) will allow for higher prices before a sell signal is issued.
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