Thrusday, May 14, After Market Close

We had a good distribution day on Wednesday, which is usually followed by another distribution day within 2 to 7 days (unless stopped by a large accumulation day).

We are in a correction, but the question is - how big.

First, we have options expiration tomorrow and with the DIA, SPY and Qs are bearish, the big program traders will go all out to squeeze the bears for ssome profits. If we do have an up day tomorrow, but not a significant one, then the decline may continue on Monday when unencumbered by options expiration.

The CPCE and VIX is bullish at the moment, but can change to bearish with a good down day. Expect the McClellan Oscillator (NYMO) to also go bearish with a good down day. Right now it is neutral. The MACD, normally a reliable trend indicator, says we're into a downturn, but I'd like to see more distance between the slower red and the fast black lines.

The NYHL can warn of false breakdowns. If the red falls below the horizontal black line, then a decent correction is taking place an we're into a downturn. Even if the red line doesn't break below, small profits can be made during this correction, but don't expect a major correction to take place without the NYHL breaking down.

I'm shaded to the bearish side right now, but have tight stops in. If the NYHL breaks below the horizontal line, then it's time to commit more resources in anticipation of a large correction.

Some technical analysts say if a major correction is underway, then we've seen the all time high for many years and the market will go down to break the lows. Others say this is a correction that will take the S&P maybe to 780-800, then the market will rally to 1,000 or higher before seeing new lows later this year.

The market fundamentals are terrible, but the PPT and the big program traders (Goldman Sachs) have a lot of control over the market. The PPT want their insolvent banks to issue new common stock for recapitalization at high prices. They prevented an all out melt down on Wedesday, but this doesn't mean their bells can't get rung, which will likely take a black swan with market panic - - and there's lots of potential there. This could include a breakdown of the dollar below 80-82, treasury issues that don't sell, or more bad news. The market is skiddish and some real bad news will drop it like a rock.

Thursday's 15, 30 and 60 Minute Full Stochastic suggest prices could fall Friday.

We'll see how this plays out, but I wouldn't commit a lot of funds to the short side just yet. The next two, three or four trading days should let us know how big this correction will be, or if this is just a buyable dip. Given the market fundamentals, I have a real hard time going long in this market, so if it is a buyable dip, I'll probably go on remaining skeptical and stay out until things reverse.

Due to work committments, I'll be posting intermittently from here on in, maybe a couple times a week, or unless there's an important market event.