SPRD

I added this to the newsletter two days ago, today it flies!

Critical time again!

Trust me, I am confused like anyone else trading this market. I am a swing trader who needs a trending market to profit. Let me put this way, I need some green bars altogether or some red bars altogether, not a green bar followed by a red bar followed by another green bar. The recent volatility frustrated me and I have no solution to it, but decrease trading to a minimium level.

Back to the market. As usual, some positives, some negatives. Let's list the negative first.

1. Tomorrow we will have the non farm payroll number again and we are still trading at the lower end of range. The longer we stay here, more likely we will go lower.
2. Banking index is VERY weak, especially GS.
3. The Hindenburg Omen and death cross etc all point to a steeper decline.
4. The economic numbers are bad, as usual.

Now positives:

1. China is still holding an uptrend.
2. Draw the trend line differently, the banking index is sitting on the support, due for a bounce.
3. Very bearish sentiment according to AAII. I also did a survey at http://www.bespokeinvest.com 64% readers see Dow 9000， 36% see Dow 11000. It also validates the deep bearishness among the investors.
4. I can't think of any reason the market crash here without any particular bad news. The financial crisis happened just 2 years ago, the Euro crisis and BP crisis just a couple of months ago, it is rare we will see another nasty event in a row.

So which direction should we go? After all those sayings, I honestly don't know. All I know is if we have a negative reaction of tomorrow's number, I will cut longs, buy back FAZ for protection!

Another leading indicator I am using

Besides our banking sector, China has played a major role in my analysis. China has grown to a much stronger economic entity, now the whole world is evolving around it, including our stock market. From the chart above, the Chinese stock market is challenging the resistance and forming a bear flag. So it also says caution and lots of cash needed.

Banking sector broke down

Looking back the last post about four months ago, I emphasized the importance of the bank and it is still valid. The weekly chart of the banking index has clearly broken the trend line. That means caution and cash is the king.