Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling?

I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets — year-in and year-out.

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Meanwhile,  Bernanke has discovered that buying Euros with US Dollars has double the Dollar destruction factor as buying Treasuries and Congress is clueless of his actions and he has no accountability. This pumps up the Euro stabilizing Europe while effectively creating 30% inflation at the grocery store (but we dont count that in the inflation data). Essentially, US food shoppers are bailing out Greece, Italy and Spain (unknowingly).

Lets take a look at SPDR S&P 500 Chart (NYSE:SPY) (S&P500) Daily chart to see what all this means (Analysis below)

From the top of the chart

DI +/- Although we did see a crossover in the Directional Index, it was weak and declined without a definative breakout.

MACD The Moving Average Convergence/Divergence broke above the midpoint and would appear bullish. However, it is currently at its highest level in several months with a declining histogram indicating weakness

RSI The Relative Strength is now hitting the overbought level for the third time. Usually it takes some tracking space to develop momentum to break out. More likely, were seeing a triple top which is usually an indication of the price topping out.

Stoc Stochastics maxed out quickly in this recent rally and have been in an overbought condition all this week. Markets can remain in an overbought condition for sustained periods.

MFI In my opinion, Money Flow is the ultimate indicator of market sentiment. The MFI hits its crescendo around 80. Once it his that level and begins its decline, it virtually never reverses until it get near the 20 level. The MFI gave is a Sell Signal on Wednesday.

Price We have been range-bound from 1100-1230 since the big sell-off in August. Technically. Fridays close just above that could be considered a breakout.  However, we need more confirmation than just price. In this case we have declining volume which is a lack of conviction (as well as the other indicators being overbought). Another thing to look at it the candlestick patterns. A gap up at the top of the range is often a last gasp effort to shove the price above resistance (a hopeful maneuver for follow through). We see two previous gap up maneuvers that failed. This pattern is called an Evening Star. If Monday is a down day (that starts with a gap down) well have an Evening Star pattern which is very bearish. The last thing to look at it the 200 Day Moving Average (purple line) we are still below that. Its said that smart money doesnt come in under the 200 DMA. I would need to see a strong break above the 200 DMA to give the All Clear to get back in the pool.

Summary So far in Earnings Season, reports have generally met (low) expectations. The exception being Apple which was the first miss since 2004 but was quickly explained away. This weekend is round the clock summits in Europe with the big powwow on Wednesday. The market (well, at least the HFT Algo programs) has been driven by keywords out of Europe. Rating agencies are threatening a downgrade of France. This would be the first non-PIIGS downgrade in Europe. As Im writing this on Sunday morning, the Futures Markets are closed, so I dont know what to expect for an open on Monday. A lack of euphoric rumors on Sunday night could be taken as a bad sign. Without a Merkel Miracle on Wednesday, the market will be very disappointed. Even so, the old market adage says Buy the rumor; sell the news.

If you have any long position, this euphoria might be an excellent time to take profits (at the very minimum). For the most gutsy, a significant sell-off on Monday would be a signal to short Europe (NYSE:EPV), S&P500 (NYSE:SDS) and the Financials (NYSE:SKF). Another option would be to go long on 20+ year Treasuries (NYSE:TMF) or long on the Volatility Index (NYSE:TVIX).

Drop me a note if you have any questions: davidgillie@etfdigest.com

ETF Digest writes a subscription newsletter focused on technical analysis of exchange-traded funds. ETF Digest was founded in 2001 and was among the very first to see the need for a publication that provided individual investors with information and advice on ETF investing.  Even if you’re not a fan of chart analysis, ETF Digest provides insight and commentary into which global markets are “working” and why.