1/7/2017 weekly update

The market of the first week of Jan., 2017 started off with a Bang(all time new record high). Most traders and investors starts to pay attention to the 2nd week of Jan., 2017 for possible trading setups and investment opportunities. Let's review the overall market situations for 3 big indices and derive the possible further developments of market. I usually use the bullish percentage index to watch if the market be ready for rolling over to the down side, or keeping the uptrend or turning into side way, even for detecting the bottom of the market.

First, let's look at sp500 which is most popular one for trading.  Although all comments on the chart, I summarize them here. The bullish percentage index of sp500 is developing following characters:

1. Negative divergence on MACD, if no golden cross back up on MACD, sooner or later a big pull back will happen on sp500, however, with negative divergence on MACD, market still can make new high (it is a fact, so shorting market with negative divergence is not a foolproof method). This pattern was repeated in August. 
2. All short term MAs (moving averages) are still pointing up, and the bullish percentage index still sit above these MAs, so in very short period, it is better not to initiating a short position for ST (DT is a different scenario)
3. When there is a big pull back/correction, the 50% mark can be used to do bottom detection. 

http://stockcharts.com/h-sc/ui?s=%24BPSPX&p=D&b=5&g=0&id=p84799507706&a=498047388

Second, let's look at Nasdaq. After making new record high, the bullish percentage index has very similar characters as the ones of sp500. So if initiating short here is a little bit premature because there is no confirmation (even you are right to short here). 

 http://stockcharts.com/h-sc/ui?s=%24BPCOMPQ&p=D&b=5&g=0&id=p33006714655&a=498204661

Third, let's look at Dow. Dow's bullish percentage index is very interesting. Although the value does not look that bullish, but all technical indicators are still very bullish. This can explain how Dow consistently outperform the other 2 since middle of 2016. Same conclusion, there is no turning point showed up yet, so to be cautious to open short.

 http://stockcharts.com/h-sc/ui?s=%24BPINDU&p=D&b=5&g=0&id=p86570229806&a=498203364

The last to check is the VIX which gauges the put call ratio of the index (in another word, the fear index of the market). When VIX is too high (too much fear), the market bottom is imminent; when VIX is too low (no fear at all), the market is in too complacent mode, the imminent top is approaching. I usually use VIX of VIX to gauge the VIX bottom/top to predict the market. The VVIX already in the zone of "suggesting to take some profits".

http://stockcharts.com/h-sc/ui?s=%24VVIX&p=D&b=5&g=0&id=p28479351786&a=498241909

Final thoughts: 

1. market is in the process to make a short term top, the market still can inch higher toward 2300 (but it may several days to teen days)
2. if you have substantial long positions, you can gradually start to unload
3. if you are ready to short, you can gradually to add short (not aggressive short immediately)
4. individual sectors could still move up (the details will be unraveled later)