The market continues to be weak. However, the fact that on Friday, the DOW climbed back above 10,000 can be seen as an encouraging sign for the bulls. It appears that the bearish sentiment is climbing steadily. Most of the hedge funds are pulling money out of equities and investing in bond funds. I am not quite sure whether we are seeing a bearish extreme quite yet, but we might be close. Maybe the bearish extreme will be seen in Sep or October, followed by a strong rally (since there is so much money that is not in the equity market).
One other pattern I have noticed is that I have been using a 40 day period for my bollinger bands with a 150 deviation and a 20 day period for my moving average. If you notice in the daily and weekly charts, whenever the 20 day moving average crosses below the average of the median line of the bollinger bands, generally there is a long decline. However, the market stochastics (overbought / oversold) for the daily charts are showing an oversold condition peak might be near, but the weekly stochastics have some more room to run (lending support to a sharp sell off possibility in the next few weeks). (Please note that the charts are using Log scale rather than a linear scale). Currently, in both daily and weekly charts, the 20 day/week moving average is below the 40 day/week bollinger band median average indicating a downward bias to the market direction.
The stocks with good patterns of consolidation are Apple (AAPL) and Chipotle Mexican Grill (CMG). Intuitive Surgical broke to the downside recently. I will continue to monitor it and hopefully find the right spot to enter the position. Overall, I would continue to monitor the market and see if we get a big sell off day soon. If we do, I may reenter the market with up to 25-50% of my cash.
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