STOCK MARKET CRASH? HAS THE TREND CHANGED?

Stock Crash - is it coming or not? 

Trading is like following a trail, you have to stick to the proper course. If you look at the shadow in this picture you can see my wife who is in front of me making sure I am staying on the trail looking back at me and taking a picture which of course was destined for Facebook! We were on trails in the mountains just off our ranch this past weekend when she took this picture and it reminded me of how you have to stay focused on what is in front of you and not what is behind you. This is what I was doing as I was riding our largest horse who is not generally cooperative even though he looks mellow in this still shot. His cooperation did deteriorate as our trail ride went on.

The key in trading is to know when the trail you are on is leading into a bad place and to get off of it. I think the current trail we have been on for the last several months is leading us into a bad place. I am spending more time this month than I typically will in the Newsletter going over all the things I watch to gauge the overall health of the stock market. I did find it interesting that when I put the words stock crash into the title of a blog post it instantly generated more traffic via search engines. I just wish this were not the case. There is no reason to go through life just looking for the next negative event like so many people do. Yes we will have crashes but we will also have spectacular rallies like we have had the last 3 years. The goal should be to establish a neutral stance and play both sides, which is easier said than done.

Here is the daily chart with the ES and my COT Synthetic indicator. It has been working well recently missing just one trade over on the left where it was quite a bit early. If you turn off price and just look at the indicator this would show a sell signal. We also have the Vix sell signal that I showed in here in yesterday's post. What troubles me is the very sharp nature of the upward move we have had. In general terms we have a down trend with a sharp retracement in the price with the Vix supporting it. This should be a decent sell signal.

The one problem we have is the time of year this is happening. It has been a pretty regular pattern to see sharp rallies going into the end of the year from this time zone. This makes me a bit hesitant to just blindly sell into this amount of strength. Aggressive traders could just have at it here but I am not short in this market yet and I am not shorting it today. I would like to see a break of something significant to confirm we are heading back down and I don't see anything that jumps out at me as a point that would represent that yet.

We do have that November 30th date still lurking out there in front of us where the mystery chart tells us a top should happen so I am watching closely.

Good Trading