Wednesday’s Afternoon Update 3/3/2010

Bottom Line: Despite believing the price top for this move has not been seen just yet, we ARE seeing more signs to turn us cautious over the next day or two.

This morning, we mentioned a few things that bothered us, which included a falling VIX (see the chart), lagging internals and lagging relative strength from the market’s prior leadership. Now this afternoon , we see a few things that stand out:

• Volume…specifically the huge spread between the OTC and NYSE. The OTC is running well above the daily average, while the NYSE is running well below. Chances are, this is NOT random or coincidental. We know from experience that a dramatic drop in volume shortly after a big bounce is a bearish set up. Take it as a sign that the buying interest is exhausted. We also view the rise in the OTC as a sign of advanced speculation…or as a signal that there’s more chasing (trapping). In either case, the volume model is very telling today.

• The Dollar…and now that it’s pulling back (something we have been saying over and over to expect), we believe the tape isn’t as strong as we anticipated. Again, we don’t believe this is random, but rather a “tell” that a surprise just may be brewing.

In summary, near-term targets for this move off the early February low have been met ($1125 SPX) which at least satisfies one of the conditions we were looking for before a call for a trading top. While we believe there’s more to go, we see enough evidence to believe taking some chips off the table is the wise move.

We took profits earlier today in NOVL, FFIV and XLNX. Now, we are booking in gains in WBSN (over 10%), HD (up nearly 10%) and HPQ (up over 7%). Each of these stocks were bought within the last month.

Be sure to check out our Stock Watch List, to follow our up to the minute Stock trades and changes to our stops and targets