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U.S. Market Update: The Stock Market Holiday Bulge – Prepare for Selling

December 30th, 2013 · Chris Vermeulen · 6 Comments

So far this year (2013) has been a great year for trading and my 2014 forecast looks to be as good if not even better. I do have something exciting to share with you that is going to make 2014 really amazing, but first let me talk about the stock market and what is likely to unfold in the next week or two so you can protect your investments.

As many of you know, I follow and post frequently on I like to see what traders and investors are thinking/feeling about the broad market using extreme sentiment readings as a contrarian signal for trade ideas or to protect open positions more by tightening my protective stops and locking partial profits.

Below I have posted a two charts on sentiment courtesy of StockTwits to show these extreme readings of where the US stock market is trading at. The first chart is of the symbol $STUDY and this sentiment shows us that 98% of trading material is bullish on the stock market right now. My theory is, if everyone is moving in one direction, you better be ready for them to change direction any time. The masses move like a school of fish and one they get spooked they change direction and start selling everything they just bought.

The second sentiment chart is of the SPY exchange traded fund. This mimics the SP500 index and is also a gauge for broad market sentiment. If we think back to the 80/20 rule, we know that 20% of the crowd/clients are correct while 80% tend to be incorrect. With sentiment reaching the highest level in a couple months and with the index making new highs, coupled with the holiday price bulge (holiday rally) logic says a pullback in the near term is very likely an that it could be sharp and it almost like  automated trading.

Market Sentiment – Broad Market Contrarians Indicator


The stock market has wave like patterns that form on a monthly basis that provide us with a steady stream of trading opportunities. One of the best swing trading tools for timing these waves is through the use of this chart below provided by

The chart below is self explanatory, but let me quickly explain how it works. This chart rises as more and more stocks trade above the 20 day simple moving average. And when the majority of stocks are in a strong uptrend, it’s a lot like humans all trading in the same direction (a school of fish) and the odds favour a change in direction temporarily. These waves are great intermediate trends for swing trading and typically last multiple weeks at a time. This is one of my strategies which I trade with my members at alert newsletter. Keep in mind, its not as easy as it looks, because there are more moving parts to this equation but you can see these extreme waves clearly in this chart.



The Holiday Bulge & Amazing Information Conclusion

With the stock market still firmly in an uptrend and firing on all cylinders short term analysis is pointing to a pause or pullback in the next week or two.  I did forecast this exact price action several weeks ago and how it could lead to the start of a major market top. If a major top does form early in 2014 then we could make some big money once the down trend starts.

Remember, stocks fall 3-7 times faster than they rise, so once we get short massive gains can be made quickly and while the masses (school of fish) are losing money, we should be on the other side watching our trading account sky rocket!

6 responses so far ↓

  • 1 Lachlan Scanlan // Jan 7, 2014 at 8:05 am

    Hope Chris is correct about this pull back. Would like some discounts on metals too and hopefully the gold market and miners will turn around afterwards.

  • 2 Greg Atkinson // Jan 7, 2014 at 8:41 am

    Gold does seems to be holding around the $1200/Oz level so if it were to take a dip below that then it might be time to take a small position.

    The U.S. market seems primed for a major correction but when might that happen? Perhaps Yellen will say something to spook investors?

  • 3 Lachlan Scanlan // Jan 8, 2014 at 8:05 am

    Might just take another day or two of rising candles “if” this dip is going to occur Greg. At present short term is direction-less and this will resolve any time now. Gold and XJO should both dip together and XJO might fool a few bulls into a trap here because it’s also got some bullish reversal characteristics after the last dip happened.

  • 4 Lachlan Scanlan // Jan 8, 2014 at 8:07 am

    Bullion shops shut for holidays still… an omen?

  • 5 Richard // Feb 8, 2014 at 8:37 am

    Is the correction over ?
    Or is it just a dead cat bounce ?

  • 6 Greg Atkinson // Feb 9, 2014 at 9:36 am

    Richard I reckon the correction has further to run and that it will be a rough year for the US markets.

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