This is from a trader named "Denali".  Summary: this is a strong trend!

Market Melt Ups – May 2013

Apologies in advance for the length of this comment – but there is a lot of
information to present.

It is clear that we are in another melt up market – this is an observation –
not a complaint – though I will admit that my swing trading approach which
focuses on Turning Points does not do that well in melt up markets. There are
many noteworthy points about this rally that have been mentioned in the media
in the last week:

• The first time in 17 years the market hasn’t had a 5% correction from January
through May – pretty amazing.

• Dow Jones Industrial Average has not had a losing streak of 3 days this year
— longest such streak since 1958.

• 18 Tuesdays in a row of up days

I will also add that we have only had 5 hourly BUY Signals this year which
is by far the fewest to start the year since the market bottom in 2009 – we
generally average between 3 and 4 buy signals a month and even in 2012 – we had
7 in Q1.

After looking extensively at the markets since 1998, I have identified 6
market periods that meet the definition of melt up markets – which I will
somewhat arbitrarily define as extended period of at least 3 months with no
touch of the 20 week MA and no daily OS periods – while I did not make it a
criteria – I could also have said for some periods like the current market – no
daily stochastic below 20%.

The 6 periods were

o Sep 03 to Mar 04

o Jul 2006 – Feb 2007

o Feb 2010 to Apr 2010

o Aug 2010 to Feb 2011

o Dec 2011 – April 2012

o Nov – 2012 to ???

I rejected Oct 98 to Apr 99, Oct 05 to May 06, March 07 to May 07, Jul 09 to
Jan 2010 and Jun 2012 to Sept 2012 as there was either too much corrective
action, the period was too short or we got daily OS. There is probably a lot to
learn from those periods as well, but I needed to operate within certain
constraints.

Officially, this move is the longest (previous longest was 177 days – Aug 10 to
Feb 2011) and today is Day 180) It is also the biggest price move with the 313
points so far beating the 304 pts of Aug 10 to Feb 2011.

Almost all of the periods started in the same way – but I will not cover
that as the primary point of this note is to cover how did the melt ups perform
in opex and how did they end.

The most interesting opex related point is that the melt up periods
generally had the same opex characteristics for the move – which is they either
completely ignored opex or had very limited corrections (2006 and Dec 2011 –
Apr 12 melt ups) or they all had opex related characteristics.

Other than January 2013, this move has all had opex related turns with
December a Wednesday top and a 9 day pullback, ,February a post opex top and a
7 day 45 pt pullback, March a Thursday top and just a 25pt pullback to the
Tuesday after and April a major bottom on Opex Thursday –which is unusual for
these melt ups – BUT there is one other time we had a MAJOR 7 day correction in
to opex and that was Nov 2010 – which technically is not a true melt up as MID
and RUT melted up while the SPX actually got OS, but it did have a 7 day
correction in to opex just like we did in April and then obviously that rally
continued.

Bottom Line: Based on how this market has traded in opex, there should be a
correction of between 25 and 45 points coming that will last between 3 and 5
trading days.

As for the End – WHO KNOWS?

But it might be near as the Weekly RSI is 80) and the Monthly RSI is 83 and
we are 33pts above the Monthly upper Bollo Band

Here is how the others ended:

• 2003: Weekly RSI was at 82, Dailies were unremarkable as the market had
stalled out during the month of Feb 2004 and pulled back at Feb opex Thursday
and then it was just a slight new high before we rolled over

• 2006: Peaked on Opex Thursday in Dec 2006 above the upper daily bollo with a
weekly RSI at 80, a monthly RSI at 81 – but this was not the final high, as we
just pulled back for 25 days and got OS – then we had one final 8 week run
before the next major correction when we fell sharply in to March opex

• Feb 2010: Peaked two days before the FOMC at the end of April 2010 with
weekly RSI at 79 and that was a SERIOUS TOP as we then experienced the FLASH
Crash the following week

• Aug 2010: Weekly RSI was 83 and MFI was 83 – Monthly was 4pts above the upper
bollo and we topped on Opex Friday in Feb 2011 and then we fell sharply in to
March opex

• Dec 2011: Weekly MFI at 92 and RSI was 74 – momentum had really peaked post
March opex and the final high was just above the post March opex highs in early
April 2012 (very similar to the March 2007 end)

So based on those 5 periods, we are certainly sharing many of the
characteristics of an ending… though the market will do what it wants to do….

Oddly, two of the periods (Jul 06 to Dec 06 and Aug 10 to Feb 11) started in
opex and ended in opex – this move also started in opex…..

Anyway, all of this leaves me with three potential scenarios which I am
ordering in terms of turning point probability

SCENARIO A: Market has a sharp pull back during opex or post opex for 25 to
45 points (and 3 to 5 trading days) and then continues on to a top later in the
month (post Memorial Day?) or in early June (post employment?) – this would be
like Feb 2010 to April 2010 or July 2003 to March 2004

SCENARIO B: -Market tops during opex or just post opex and we fall in to
June and then rally again (Like 2006 and Aug 2010 to Feb 2011)

SCENARIO C: – Market shrugs off opex and we just keeping heading higher

Finally, we have yet to have May’s usual minimum one week correction – which
since 1998 has only not occurred in May 2003 and May 2007 – both of which hard
sharp post opex corrections of 39 and 28 pts respectively.

Lots of info, but hopefully useful perspective. It certainly has helped me
frame the current market price action.