The RSI(2) is painting a clear picture of one difference between an uptrend and a downtrend. During the uptrend, RSI(2) will stay overbought longer than oversold. During a downtrend, it is just the opposite. This Nasdaq chart clearly shows this. What we want to watch for is a change in this behavior. If the indexes start staying overbought for longer than oversold, we will watch for a new uptrend.

Until that happens, all indications point to a pullback.

 The SPY has about 12 more points of RSI(2) before it will hit areas of recent ceilings. Therefore, the pullback may be quick, with 1 or 1.5 strong days to follow, which will allow the indicator to reach the highs necessary for a turning point. If the SPY rolls over here without hitting in the 90s (as I’m somewhat expecting it to do), the run up will be proved weak, according to the RSI(2).

I will be really, really surprised if the Dow Jones does not have a pullback here. I will look to see the 12325 area on any pullback, or about a 200 point drop from today’s close. Should the Dow Jones hold this level on a pullback, I will be a buyer.

I still have not made any major buys after proclaiming a bullish bias here. In fact, I doubled my short of (LEH: 0.00 N/A), and bought (QID: 98.60 0.00%) and (DXD: 99.21 0.00%) near their lows today. I think the momentum is wearing off this recent push, although I am still bullish on the indexes as long as they hold above the 50 day average.

Should any test of the 50 day average be successful, I will start charting more breakouts and other bullish patterns.