SPY Breaks out with some Red Flags

SPY broke out of its triangle today breaking the downtrend from the summer.  The market was lead by financials as GS, BAC and MS were strong today.  SPY declined in the beginning of the day but was able to hold its support level of 129.03, making a low of 129.08.  Eventually SPY broke through the 130.06 Resistance level and never looked back.  Breaking above 130.00 is a key psychological level for the market if anything. 

This is bullish for the overall market and shows continued strengthened by the bulls, but there are lots of caveats to this recent breakout that should be taken as the market moves forward towards greater resistance levels. 

1. Junk lead it: just going through charts tonight there are stocks that broke out that you've almost never heard of.   Below is a screenshot of Finviz.com top gainers (filtering stocks below $10 and volume above 500,000).  Do you recognize any of the names?  The market should be lead by leaders not junky stocks.

2. Low Volume:   Looking at the NYTV you can see it is not even close to its average.  So this breakout wasn't supported by volume a breakout should accompanied by volume.  This shows that there is momentum behind  the movement.  

3. Getting too Bullish:  the Put/Call ratio has once again headed to the bullish lopsided level.

Overall: This breakout is bullish and the trend is still up.  SPY is now nearing its highs from the summer right before the Europe crisis started.  As SPY continues to climb it is nearing our topping level as I see wrote on January 2nd: 

Overall I believe 2012 will be a bearish year, but this won't start till late February early March.  With the top coming in at SPY 132.66 and bottoming at  95.65 eventually finishing at 105.

There is no reason to get all bearish yet, we have still have the Tungesten Cross and VIX has not hit 16 yet also we are not overbought either. 

Roll the Dice 1 in 4 chances of a crash and 5 out of 5 of a new low

Well slap me around and call me Susan, the bears got a nice victory again today.  There was so much selling that 99% of the volume was to the downside.  Giving the NYUPV/NYTV ratio a .01.  This has happened only a few times.  Here they are:

 4 out of the 5 times the market was up the next day.  There was one day when the market didn't go up, the 1987 crash.  The last 4 times this occurred, the market rebounded and was positive 15 days later.  All expect that one time the 1987 crash.  Also notice that the .01 ratio happened twice in October of 1987, with the second time marking the rebound.  So had you bought at the close today you have a 4 in 5 chance of being positive tomorrow and a 1 in 4 chance of getting wiped out by a crash.  Its your move holy man!

If you are thinking longer term here are the charts following the .01 events

19871997

2007

2008

5 out of 5 times the .01 ratio has signaled that lower lows will come. 3 out of the 5 came within a few days.  2 of the 5 came within a month or two.  Those are pretty good odds, we aren't going to rally to new highs anytime soon.  But if you look at the chart, once those lows are in the market has rallied. 

Exterme!

Here are a few internals that are showing exterme lows.

NYTV:NYUPV RATIO: Today was a .04

NYMO- Dropped below -100

NYAD- Dropped below its 39 EMA and its lower BB. Notice the last this occured.  Take note though it has never happened this fast.

The market is overbought

The market is very overbought, at this point SPX has rallied 6.3% since its close on 2/5.  The Stoch on SPX are showing signals of an overbought market but there are also other non-traditional indicators that are showing overbought. Here are charts that I use to show me overbought or oversold.

NYTV ratios:
When the Up-volume to total volume gets to extremes is can be seen in this chart as the moving average climbs above the overbought line at the .65 level.  This means that 65% volume is up, so the crowd is heavy on the bull side.  This overbought condition can be seen as also in the Down-Volume to total Volume ratio.  You can see from the chart the right now the down-volume makes up 32% of the market. This historically very low. 
These have been good indicators of overbought and oversold markets.

MEGA B:
This chart is similar to the NYTV volume ratios, expect this chart does not have ratios.  Instead it is a moving average of Up and Down volume.  Again the market has certain extremes and when the moving averages go below them it signals an overbought or an oversold condition.  For this purpose overbought is when the Down Volume moving average is below the green line.  Oversold is when the Up-Volume is below its purple line.