Stock Geometry: February 2012

Sunday, February 19, 2012

Five Charts Suggesting a Top is Near

1. Key divergences on the S&P 500. As the index has made new highs recently, key price indicators such as RSI, CCI and MACD have made lower highs:

2. Apple has capitulated. The three year rally in AAPL shares from $100/share that has made the company the largest in the world appears to have ended with a blow off top:

3. The VIX broke out. Despite the recent rally in stocks, the volatitlity index has broken out and remains off the recent lows set a few weeks ago:

4. Bonds remain in a long term uptrend. Bulls want to see yields rise as investors favor stocks over bonds. Instead, bonds have held support recently and remain well above their 200 dma:

5. The dow transports are rolling over. Dow theorists will note that the transports are significantly underperforming this year, hinting at underlying weakness in the market:

It feels like most market participants are expecting a massive rally after Greece gets bailed out again and are afraid to sell. I don't claim to know how the market will react to the inevitable bailout news, but stocks are well positioned for a fall from here. I'm thinking that any push higher (perhaps on bailout news) from here provides a low risk shorting opportunity, at least in the intermediate term. So far I just have a few small shorts on but hope to add more this week.