Look out, danger signs

Overextended

Friday was an interesting day that ended up flat overall.  The RumWave chart continued higher as well did most of the scores for my daily scoring system.  Additionally, bearish divergences showed up on the DJIA 4 hr chart and the SPX 4 hr chart.  All of those things indicate to me that we are seeing a market that is overextended in the short term.  I won't turn on the red light until my criteria is met with the RumWave, but I did buy a small bearish position on a small cap index fund Friday as a gamble in an effort to lead turn what I believe will be a short term pullback.

Daily scores:

The daily scores above are now all in the red zone.  They could stay up there, but as we think of the scores as a spring, the spring is over extended and stretched out.  All that is needed is a catalyst to release the spring back to its neutral state.

Above is a screen capture of all my calculated scores since the system's inception.  The very top graph is the cumulative daily score.  You can see how big of a move we've had; far bigger than any previous moves.

The chart above is a SPX 4hr chart.  I've highlighted bearish divergences with yellow dashed lines.  We can see higher highs on the upper price graph, but lower highs on the Slow Stochastic and RSI.  The CCI is essentially flat. 

 The chart above is a DJIA 4 hr chart.  Bearish divergences are highlighted with yellow dashed lines.  We see higher highs on the upper price graph with lower highs on the Slow Stochastic, RSI, and CCI.

While bearish divergences do not always result in declines, they seem to be reliable more often than not.  The fact that they are visible on the DJIA and SPX improve the likliehood of a short therm decline.  A bearish divergence is also visible on the Russell 2000 4 hr chart, but only on the Slow Stochastic chart.

From an Elliot Wave perspective, at it's most basic interpretation level, I can count a 5 wave up pattern from 16 Nov to 30 Nov on the 4 hr charts.  This would lend itself to a corrective A-B-C pattern next.

So, the bottom line is that I think a corrective short term pullback is due.

TSP GAMEPLAN:  G fund.

401k Gameplan:  Safe positions.

Questions, comments?  Email me @ rumwavetrading@gmail.com