Stock Market Topping Action Start of the Great Reversal

By: Anthony_Cherniawski

(MarketWatch) -- U.S. stocks wavered Monday, with upbeat results from Caterpillar Inc. and Whirlpool Corp. boosting confidence, but with the government's plan to begin divesting itself of Citigroup Inc. weighing on financials.

"The markets have been doing just about what they're supposed to do, which is if the economic numbers are better than forecast, or if earnings are better than forecast, then the market should go up," said Hugh Johnson, chairman of Johnson Illington Advisors. "Valuation is starting to become an issue. The going is getting tougher, although that doesn't mean we're not going to continue to go up," he added.

Somali Pirates say, "We are doing God's work.”

Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs. There was an audible gasp in court when the leader of the pirates announced, "We are doing God's work. We work for Lloyd Blankfein."

The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis' work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted. "We were functioning as investment bankers, only every day was casual Friday," the pirate said.

Janet Tavakoli: "President Obama - Bring Back Black"

William K. Black, a regulator during the dark days of the Savings & Loan Crisis, gave the most sensible testimony about the financial crisis heard in Washington so far.* Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honesty out of the market.

VIX broke above its intermediate-term Support.

-- The VIX staged a third breakout above its intermediate-term Trend Resistance at 17.03. A breakout above its prior highs may confirm the new uptrend in VIX.

The CBOE Put-Call Ratio for equities ($CPCE) rose to .54 today. Retail investors are still bullish, and today’s action didn’t dampen their enthusiasm for stocks yet. The pros, on the other hand, have elevated the $CPCI to 1.46 (bearish) at the end of the day. The 10-day average is still high at 1.47.

SPY tests its upper trendline.

Action: Sell/Short/Inverse -- SPY made a new high this morning before drifting downward the rest of the day. It remained above short-term Trend Support at 120.30. Friday’s pivot window remained open today and it appears that something of a reversal may have taken place. What might improve our chances of a reversal would be steady selling throughout the night. The futures market is down as I write, so we have the distinct possibility of a gap through support in the morning.

The QQQQ repelled by the Broadeining Wedge.

Action: Sell/Short/Inverse -- QQQQ also briefly made a new high this morning before easing lower at the close. The Broadening Wedge seems to be dictating the top for this rally. The QQQQs closed above short-term Trend Support at 49.72. Considering all the liquidity that has been pumped into the market on the weekends, it is a surprise that QQQQ didn’t go higher. The reality of the weekend liquidity pump is one of the reasons why I cautioned us to wait until today for the pivot to reveal itself. On a longer-term cycle analysis, this week is a near-perfect time for a turn.

XLF rests at theopposite side of the Broadening Wedge.

Action: Sell/Short/Inverse -- XLF stopped at the lower trendline of its Broadening Wedge. In the process, it also closed below shortterm Trend Support at 16.58. We may have seen the last rally for XLF within its Broadening Formation. Once the trendline (and intermediate-term Support) is broken, we should see a swift decline to Model Support at 13.24. My guess is that there may be an “event” affecting one of our major banks, perhaps Citigroup?

FXI is still in neutral territory.

Action: Neutral -- FXI tested intermediate-term Trend Resistance at 42.21, but couldn’t maintain the rally. I am concerned about my analysis on FXI. In order to follow the Shanghai Index, it would only need a slight decline before its next rally. Since February5th, I had assumed that it would track U.S. equities. The chart may be wrong, however. The Broadening Formation may not be the governing pattern. Let’s wait for it to clear up some more.

Action: Sell/Short/Inverse below 112.50 -- GLD declined slightly, but remained above its short-term Trend Support at 112.50. A rally above 114.13 would invalidate the triangle formation, so we must take care that GLD is not in a larger rally than is allowed by the triangle. The primary pattern is still the triangle, but we should be sure that GLD declines through the pattern and below intermediate-term support to confirm the bearish view.

USO declined to intermendiate-term Trend Support.

Action: Sell/Short/Inverse -- USO may be beginning its next relay lower. It closed near its intermediate-term Trend Support/Resistance at 40.32. Once below support, USO has a potential to decline to the lower trendline or possibly lower. Ultimately, it is due for a decline back down to the Cycle Support area at 34-35.00. The top view is that it is probable that USO may continue its decline to its next cycle low due in early May.

TLT pivots on a reversal pattern.

Action: Sell/Short/Inverse --TLT completed its reversal pattern today, also a pivot day for bonds. It closed above short- term Trend Support/Resistance at 89.78. Contrary to most who believe that bonds will rally in an equity decline, this pattern shows potentially the opposite behavior. TLT achieved its swing high on Thursday and now may decline into mid-May.

UUP gains momentum.

Action: Buy/Long -- UUP has not been able to rally higher, although it is still above short- and intermediate-term Trend Support at 23.70-23.72. The cycles call for a potential lower low by mid-May in UUP and I believe that the inability to rally is warning us of its coming. That means the rally to 24.14 is complete and a pullback to one of the Fib retracements is now in order.

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