Options Wonderland

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Aug04 formation which I commented during the Jun-Jul 06 bottoming process as I called for the bottom is completed. Actually QQQQ traded the same points of Aug04 rally.

Now I sense another market sentiment which I am being cautious.... as shown below:


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Nov2000 peak, SPX 1438.46 intra high, which it reversed during Nov2000 peak.

I commented on 4-8yr Global economic cycle formation during Jun-Jul 06 bottoming process which is a LT formation; but, now as I noted earlier, we have popular "3 peaks and Domed house" formation which many traders and investors are following; hence, if this irrational, parabolic price action continues, we will not see a meaningful retracement during this normally favored trading months, i.e. Nov-May.

Having said that, as I commented before, we have massive breadth negative divergences, with 17 yr low volatility; hence, it is prudent to be cautious. It takes longer time to form a Top when we have over blown bullish sentiment.

When traders are talking about "Irrational Rally", we need to prepare for unexpected market actions.



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SPX is now trading at Nov 2000 peak resistance, intra high 1438.46 after making the bottom in Jun 2006 when I alerted the bottom formation with 70yr Price Channel support and other analysis.

Now, market is overbought with breadth negative divergence; however, traders and investors need to be cautious because market can trade unexpectedly based on, “Irrational Rally” belief and “3 peaks and Domed House formation” which is unreasonable at this time after 20% rally from the mid year bottom.

We have 17yr low VIX volatility, hence, need to be cautious.


SPX LT Chart: http://www.trend-signals.com/index.htm