January 3, 2013 (2:00 pm)
NYSE McClellan Oscillator ($NYMO) Negative Divergence
The market continues to tick higher, but we’re seeing more and more signs of a pending reversal. The SPY and QQQ both opened and are trading above their upper Bollinger Bands. Both are also trading at or near very overbought territory on the near-term charts. Additionally, the NYMO has formed negative divergence by creating a lower high while the SPY made a higher high.
SPY Rising Wedge
Further, the SPY has formed a clear rising wedge since the gap up yesterday morning. This has taken place on declining volume. There’s also now clear negative divergence on the near-term RSI. Similar to the NYMO, the RSI is indicating that these new highs are taking place on falling momentum. Each of these signals are bearish indicators.
Multi-Strategy Portfolio Purchases
We took a number of positions in the Multi-Strategy Portfolio this afternoon. We will dedicate a separate post to those purchases. Suffice it to say, each position is bearish. The coming days and weeks are likely to be volatile. The extremely low volatility this morning allowed us to take inexpensive positions to be able to take advantage of the likely downside pressure in the markets. We also expect volatility to rise from here, which could add an additional boost to the price of our option positions.