The Rest of the Week Can Go Either Way

Volume on Monday was understandably low given that it was a short session prior to the holiday. Look for volume levels to remain light until next week when the money managers return from their extended holiday.

Meanwhile, bullish sentiment has been spiking to dangerous levels even as prices have been climbing on decreasing volume. This is a warning sign that a near term correction may be coming to clear out the stops.

That said, so far the bulls remain in control of the larger trend. Let's take a look at the QID, which is an ETF that trades counter to the NASDAQ 100-based QQQQ.

Sometimes it helps to turn a chart upside down to better see who is in control of the trend. Looking at the QID is the same as turning the QQQQ upside down.

As you can see, the bulls are clearly in control as sellers of the QID have been active at resistance:



Probabilities then are that the market is slated to go higher in the intermediate term.

The near term (next couple of days) is more questionable, however. With sentiment figures turning overly bullish, we would expect to see overly aggressive longs pay a painful price for their lack of patience. In the weekly chart above the QID can turn either way here. A retest of the falling trend (rising QQQQ trend) is at least as much of a possibility as a break out to the downside (QQQQ breakout).

The message here, stay patient here and only buy pullbacks; don't be a price chaser.

Longer term: When we move into the new year the end of the year mark ups could potentially lead to a broader degree of selling. This market has been horrible for long term investors and the outlook does not promise to get better in the near term. Be highly skeptical of any upside breakouts here, they may in fact just be bull traps.