Absorbing pain

My question to each of us here is "Are you looking at these markets through the right lens?" We each have our own personal risk tolerance, some more than others. Member Birchtree for example, sees waves of prices more like ripples to a pond, while someone new to the markets may see those same ripples as tidal waves of destruction. With our individualistic perspectives, we can each see the same waves of prices and react to them differently, but this doesn't mean our views are inline with the reality of what the markets are doing. So what are the markets doing? The simple answer is bonds have broken out and stocks have pulled back. But I'm guessing you haven't come here for a simple answer have you?

AGG: The strongest chart with a 78.6% strength reading going into Monday. Since 25 April, the MTV indicators I use have been very strong, with the momentum (Sto) above 90 over the last 15 sessions, that's what I call bullishly embedded to the upside. The 50/200 SMA Death Cross peaked on 11 May with a -1.56% deviation. Current projections give us the Golden Cross on 28 June.

If I were...
- Already in, I'd hold (keep your winners.)
- In stocks, I wouldn't use an IFT to lock in a loss on stocks for the slow gains in bonds.
- Out of IFTs, I'd consider taking some (not all) profits before the next pullback.
- Sidelined, I'd wait for a pullback and look for an established higher swing low.

S&P 500: Last week one of my recommendations was "Wait for an intraday break above 1355 in conjunction with a higher intraday low." This would have been an entry on 10 April and as things stand now, it's not an ideal entry point, being down 1.45% off Friday's close. I don't strive to pick tops & bottoms, I strive to play the trend off the tops & bottoms, so some patience is required. Here is what I do know. We might be establishing a volatile trading range currently from 1330-1370. As long as we don't close below 1330, the Bulls have overall control of the intermediate uptrend. For the 6-month trend we don't want to violate the 1292-1296 area for May's week 3. As a warning, we do have an hourly Head & Shoulders that could take us down to the 18 April 1294 low. I'll show you that pattern on the Wilshire 4500 chart, in hourly form.

If I were...
- Already in, I'd hold.
- In bonds, I'd not consider using an IFT into stocks.
- Out of IFTs, I'd stick it out, looking for the uptrend to resume.
- Sidelined, I'd at a minimum, wait for a bounce off the 1330 low followed by confirmation. Entertain the possibility of a 1294 bounce or breakdown.

Wilshire 4500: The overall picture is the same as the S&P 500, to include the volatile trading range from 702-733. I'm going to add a different view here, because I want you to be prepared for the possibility of an hourly Head & Shoulders taking us down to the April 18th 689 low, where we might get a bounce.

If I were...
- Already in, I'd hold.
- In bonds, I'd not consider using an IFT into stocks.
- Out of IFTs, I'd stick it out, looking for the uptrend to resume.
- Sidelined, I'd at a minimum, wait for a bounce off the 702 low followed by confirmation. Entertain the possibility of a 689 bounce or breakdown.
Hourly Chart for Wilshire 4500 only:

EFA: This chart has taken on some substantial weakness and threatens to violate the dominant 6-month trend line. If this happens, it doesn't mean the trend is down, it just means it's changed, we'll have to wait and see where this bottoms out. In addition, we've broken through the blue box which is where the 3 previous tops traded. All in all, it's ugly but that's not to say there isn't a great play to be made for someone who is willing to absorb substantial risk.