Well that got ugly fast. The past five days has seen my outlook on this market drastically change. The deterioration in the Big-Cap technology related stocks and the Big-Bank stocks is beyond concerning. These stocks have put in roll over tops, H&S tops, and other various topping formations on very heavy volume. A few of these stocks have already death-crossed (when 50 dma crosses below the 200 dma) and many of these stocks are on their way to performing this feat. That being said, our models remain under a NEUTRAL signal across the board with only the DJIA under a SELL signal. No models are under a BUY signal currently.

When I look at these leading stocks and then combine this action with all of my hard work the past two months trying to manage positions to make a few dollars while spending way too much in trading commissions it becomes increasingly clear that something ugly could be around the corner. This is, of course, unless another round of QE is unleashed. However, even if that happens, I am not sure the market is going to buy the QE dream anymore. It looks like the fantasy of QE working forever is slowly becoming a very ugly reality for central bankers.

Oil and Bond Yields continue to telegraph a message that something is terribly wrong here. Deflation is hitting Europe, Greece has elected a “radical” political group, and China is slowing down. In the real world, without QE, the macro story tells the tale and if the truth now matters then it is telling us that bearish winds are blowing.

Making this even more concerning is that bulls still reign supreme everywhere. AAII, II, NAAIM are bullish, bullish, and even more bullish. Bears continue to be no where to be seen as they are at levels in the II that suggest total and complete complacency. This year is only the 8th since 1929 to post a January loss after 3 or more consecutive up years. Do you know how the rest of the year, every year that has happened, has played out? I’ll tell you. Not good. Down all 8 times. The last time this happened was 2008. The average returns for those 8 years is -14%. A recession followed every one.

I know all of this data looks scary for the perma-bull but remember it is just data. Another round of QE could come in and throw all of this history on its head. I mean wasn’t it just last week I was mentioning that the NYSE ADV/DEC line was hitting a new high and that the market has never topped when this line is hitting a new high? Yes. Do you also remember that I stated that it would be a great F-U by this market to do the opposite of what this key technical indicator was signaling. So many traders live and die by the ADV/DEC line in coming up with their bullish and bearish thesis that a first ever false signal would be golden here.

My personal biggest tell something isn’t right is that we continue to get too many trading signals with most of them not working. The fact that a lot of signals are not working is not surprising with this tape. What is surprising is that after a sell off and a bounce, we get more trade ideas that then fail. If there weren’t so many signals, it would be much more clear that this market is ill. With this most recent round of signals not working, and the big cap stocks really starting to get hammered here, it is now clear that the market is on very unhealthy footing. It’s going to take a HUGE kick save to reverse the damage done any time soon in the short-term. This is going to take a little while to clean up.

I am going to add to my hedges here as I am too long this stock market in names that have small gains that could easily see them reverse quickly if this market decides to shit the bed. Therefore, once again (a tiring task at this point), Sell Stops are being raised across the board this weekend and new longs will now go through an even stricter rigorous test to become new long positions. Until the market gets some real momentum going to the upside via big price and volume moves higher with our oscillators confirming the action, new long signals are on complete hold. One helpful hint this time around, that could have helped me keep my powder more dry and not take so many of the “good” yet not “great” signals was that our oscillators never confirmed this recent bounce attempt and in fact got weaker as it went along.

It is clearly time to batten down the hatches. It’s time to get defensive. I am not going to start panic selling my long positions yet but if the rest of the indexes (DJIA already has) start breaking below their January and December support levels, confirming the now-broken 100 DMAs of these indexes, then I will start selling out of my positions that break key support levels or key moving averages. Now we know why I didn’t get any “beautiful” or “great” chart setups off those October lows. It appears now to be a part of a big giant potential post-QE topping process.

The verdict is still too far out to call it a top yet (top calling will always be a foolish task–only in hindsight do you ever know). However, the key pieces of a topping puzzle are now trying to come together. A down month for January after 3-yrs of an uptrend have never led to a strong market. There is no reason, without QE, to think that this is going to be any different. The bull game looks to be in serious jeopardy here.

Last week it appeared we had more room to go and that new highs were inevitable. After this most recent week, we are now going to need to see some powerful up days on huge volume to reverse this tide. No matter where you look in the big cap leading stock name its ugly. If you look at the IPOs like BABA LOCO MBLY GPRO, if you look at the techs like MSFT INTC YHOO GOOG PCLN or if you look at the banks GS BAC MS JPM, you see the same picture. It’s ugly. Don’t get caught with your pants down.

Have a great weekend. Prepare for a possible market pullback. Thank you. Aloha.

TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – DATE OF SIGNAL:

THIS SECTION WILL NOT BE UPDATED THIS WEEKEND DUE TO TIME CONSTRAINTS