New SOS/BOW Links

By popular request, I added links to my home page for Selling On Strength (SOS) and Buying on Weakness (BOW). They basically measure buy-sell pressure by the money spent on upticks versus downticks. I watch for SPY mostly but also DIA as good surrogates for SPX and Dow respectively. The last 2 days have seen IWM (Russell 2000 ETF) at the top of the selling list, and Facebook, Oracle and QQQQ were up there. Risk is being sold as has been the story for 2014.

As a general rule, it is my experience that SPY appearing on the SOS list keeps rallies in check for a few days (or leads to nearly full retracement when it does rally another 1-2%) and supports a turn downward. Like most general rules and technical indicators, it is nowhere near perfect but can be used in conjunction with other indicators. I have brought it up a lot in recent weeks because the quantity and monetary size of the signals has been high in a backdrop of a lot of bearish intermediate-to-long term signals, and it's a daily signal whereas my other hourly/daily technicals may not change bull-bear stance for 2 or 3 days. When you see BOW and SOS signals in proximate days, you often get swings or congestion. Perhaps some of you could study it further for fine-tuning or moving averages.

In the last week, we had a big SOS day last Wednesday, a small BOW day Friday and a HUGE SOS day on Monday. As you've seen in the past few days, that does not preclude SPX from rising some. However, the closing Wednesday signal was only followed by a 2-day rise from 1947 to 1955 and a range of 1942 to 1964. The Friday BOW signal was followed Monday by a rally from 1955 to 1972 (nearly 1% in low volatility). The Monday SOS signal has thus far been followed by a 1 day 10pt rise. In the next couple days, I either expect a test of the 1991 high followed by a retracement to the 1970s or lower OR a gap fill of 1972 and/or a backtest of the 1960ish breakout area. Beyond that without any new signals, I can only say that selling pressure in SPX and risky assets has been increasing and I expect that to show up in price soon. Terry laundry's T-Theory indicator backs this thesis up although it's current divergence signal is probably the longest since the 1990s (the years, I mean).

My S2 System would have been caught (and sold) in the 10pt gap up from 1955 but the Score is still neutral-to-bearish due to the limited consolidation below 1960 not allowing technicals to rest. Perhaps that technical rest can now happen above 1960 (or even the 1964 high) to setup a run at 2000-2020 for a week or two. My discretionary spending signal calling for a bottom in the 2nd or 3rd week of August appears to have been most prescient. Other signals swayed me to believe there would be another downleg into late August after a retracement to 1960ish, but the action near 1960 cautioned us the odds for that were lower. Although I haven't seen the technical align well enough to get bullish above 1960, we did pretty well looking for a drop from the 1985 retest high to about 1910 and then a rally to 1960ish. And, I may get bullish for a 20-30pt move in the coming days if SPX retraces a bit, but things could get dicey very soon especially after Labor Day so watch out. Good fortune.