If you look at the charts of just the Nasdaq and S&P, you probably wouldn’t be too worried about the overall market as both continue to ride their nine day EMAs higher. If you look closer, however, you can see some divergences with price and moneystream that is a bit worrisome. If the nine day EMA does break at some point this week (it’s held the ENTIRE YEAR so far for the Nasdaq), I think there is a very good chance of seeing a sharp, quick move lower of 2-4%. Hopefully, the market could right itself from there but it is probably not something you want to sit through if you have a lot of long positions.

On the other hand, if you look at the chart of the Russell 2000, you probably would be worried. This chart has been lagging for about a month now, both in not being able to challenge 2011 highs like the Nasdaq and S&P did and also moving sideways while the other two indices ground their way higher.

Breath has deteriorated as well over the past few weeks and my breadth indicator is as close as you can be to being on a sell as you can be. If we see anymore selling early next week, it will turn to a sell. What we need to see based on this chart is for the bulls to step back up and show some strength soon. They (the bulls) have been weakening for a week or two now and although we haven’t seen a ton of heavy selling, we’ve seen virtually no heavy buying and that’s the problem.

In terms of setups, this was not a great weekend of scans as I went through my charts. There are still some out there, but the number and quality of setups is certainly not what it was in January. Perhaps that’s telling us something as well. There are a few really, really, really thin names out there that look decent like SVN, BIOS, KH, and STV, but when a $4 stock averages less than 100K volume a day, it is certainly not one that has “buy” written all over it. I am not opposed to entering long positions here even with the market being “iffy”, but just be aware that it is more risky here.

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