Now that’s what I call a wave (3).  As I noted during the day on Friday, the System was taking profits, and what nice profits they were!  Energy, ERX, has returned a whopping 55% since the System signaled its long back in July.  Financials, via FAS returned 34%, the SPX, via UPRO and the RUT via TNA both returned 26%.  All in all the 8 trades (I’m not including the gains from TBT, since I wasn’t officially following it daily when I took the trade) have brought YTD profits returns to over 30%, (though only partially invested during this run).  As you review the charts below for the disparate indexes you will see that several of the indexes have broken above the upper red barrier line.  This is a sign that the markets are quite overbought.  And, even with QE3 in full force, we should see a near term correction for most indexes.  Those who’ve remained long, should be fine, I don’t expect a short signal to result from wave (4)’s correction.

Below, the 60 min SPX chart illustrates another reason for the decision to go all cash, as both the wave count shows a completed 5 waves up to finish intermediate wave (3), and it did so at key resistance of the upper channel line.