$SPX Monthly

2 thg 2, 2014

SPX off 65.77pts & 3.56%. No big deal at this time. Just another dip buying opportunity, right? Maybe.

On the chart, I've marked in two bars that represent what I think will happen in the next two months. I do believe we will see a green candle for February but it will be a struggle. For March I expect another red candle. After that, no clue. And, of course, I could be totally wrong and markets gain traction and take out the recent highs at SPX 1850 and never look back. I will believe it when I see it.

According to Dow Theory, markets move in three phases: The accumulation phase, the markup or public participation phase, and the distribution phase. The distribution phase is followed by a decline and during this phase retail investors off load their stocks at any price to the waiting large players. And the cycle begins all over again.

Why am I mentioning this? It has to do with the TRIN which leads me to believe that we've just witnessed a major distribution phase by the larger players.

I've mentioned this before but I'll mention it again. Starting on December 23rd, when we entered the consolidation zone, and going through January 23rd, the day before we broke down out of the consolidation zone, the TRIN closed above 1.00 fourteen times with 7 of those closes above 1.00 occurring on green days. This is the longest streak of TRIN closes above 1.00 that I can remember and when you add in the fact that 7 of those closings happened on rally days then you have overt and covert distribution going on. But the key is that these numerous high TRIN closings spell out major distribution by the large players into the hands of retail player who, for the most part, don't know much about the markets and get most of their information from the various bubble vision sources.

Based on the above, I believe that we've seen major distribution by the large players. And why not? These players are well aware that Fed liquidity has been a key component in this rally and no one knows how the reduction in this money is going to impact the markets. And, as the saying goes, "In times of uncertainty, cash is king."

I have a 50/50 chance of being correct in my analysis and if I'm correct then stocks will be re-priced lower for perhaps several months. If I'm wrong, then SPX will push up through the bottom of the previous consolidation zone at around 1811, or so, and then keep going until it launches above 1850 and we're off to the races again.

Since I don't short anything anymore, I prefer rally phases so it's quite all right by me if I'm wrong.

GL in the week ahead.