" whats your opinion on stocks hitting a top for now given past 2 down days?"
Well, if the S&P 500 (SPX) closed below 1740 tomorrow (Friday), weekly price action would suggest a 'key downside reversal', which is where an index (or stock) makes a new high, followed by a pullback that carried to a Close below the prior 'bars' low; that would be a weekly bar in this case. This possibility probably isn't a high one, but it gives some technical/chart guidelines so to speak.
On the SPX daily chart, a simple plain vanilla 'downside reversal' occurred in that Wednesday saw the index hit a new intraday high, which was followed by a Close below the prior day's close; Closing below the prior day's low tends to be more definitive for a top, hence the key (downside reversal) designation. The SPX simple downside reversal COUPLED with the fully overbought extreme seen with the 13-day Relative Strength Index AND the high peaks in bullish sentiment seen on my CPRATIO model below suggest caution in thinking that the recent correction will JUST be another minor pullback. It may be that but it may be the top and pullback that you'd like to avoid. I don't like risking substantial profits, such as if 'buying in' at lower levels like nearer the LOW end of SPX's broad uptrend channel.
I started off talking about the WEEKLY S&P chart and, as seen next below, is of interest for a couple of reasons. A key upside reversal was seen on the recent correction low in the week ending 10/11/13 (i.e., a new low for the move, followed by a Close above the prior week's high) which led to strong upside follow through.
Any such similar pattern in the reverse (a new high, followed by a Close below the prior week's low) would suggest a downside correction may be underway. Stay tuned on what the end of the week (tomorrow, Friday 11/1) brings!
The other, more speculative, musing on the technical picture is seen in the SPX weekly pattern of higher price peaks, accompanied by lower relative highs in the 13-week RSI. This 'divergent' price/RSI pattern sometimes turns out to be a warning of a correction. We last saw a bearish price/RSI divergence in the lead up to the July 2011 peak, when SPX went from the 1340 area to a weekly low of 1074 (week ending 10/7/11), with a strong rebound into a weekly Close of 1155.
Even very strong trends of course have counter-trend corrections. Such corrections are just usually not that prolonged and severe.
THE DOW: FREQUENT HARBINGER OF CHANGE:
Just as the Dow 30 (INDU) traced out a double bottom low on 10/8-10/9, making for the most obvious chart pattern of the major indexes in 'signaling' a bottom, INDU recent formed a possible double top. I've been suggesting to watch for a possible top in the 15665-15710 zone in INDU. It seems so simple and 'obvious' to look for that possibility that many traders probably thought, oh, that's too obvious. That 'the complex (as in making things complicated!) is the enemy of the simple' is something I've observed over numerous bull and bear market cycles.
MORE ON POSSIBLE 'KEY' DOWNSIDE REVERSALS:
We've saw this week a minor 'key downside reversal' form in the super-strong tech heavy Nas Composite (COMP). You know, COMP, the index that looks like it's going to go up FOREVER! Tech always looks like that in strong bull market cycles where the latest new tech gadgets are conquering the world. I don't want to discount the strong buying interest we've seen in COMP stocks but just would note that tech bull markets always look like they will never stop advancing, before they DO. And if you see new tech-oriented mutual funds proliferating, be on the alert for the end point.
It's the end point today of the month and of course makes for the completion of the October bar on monthly charts. Why my interest in such long-term charts? Mainly or mostly I'm always interested in possible tech bubbles, having survived (barely!) some of them. So, here I go on the more complex topic of not getting 'too' complacent on the super-strong Nasdaq trend.
I've been writing on importance I see in the 4000 level currently in COMP. If COMP were to start trading between this area and 3550-3600 and complete a couple of back and forth price swings between the narrowing-in pattern of the two trendlines seen below, the pattern would start to resemble a gigantic top pattern. Maybe not, maybe never, but I am keeping an eye on the ability, or not, for COMP to achieve a decisive upside penetration of 4000. Something longer-term to watch when you get tired of looking a day to day, hour to hour price swings!
GOOD TRADING SUCCESS!