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Tuesday, June 2, 2009

Fakeout Breakout

The market teased us yesterday with a breakout past 943, only to pull back in the last few minutes to close below 943. Today it did it again, but not quite as dramatically, and the last minute selloff also was not quite so dramatic. however, the close was at 944, above resistance, but not high enough to be convincing. This market 's job seems to draw in as many people on either side of the trade, then go nowhere in the end. Volume declined today. We are getting into an area where wer have to go back further than 6 months to find chart resistance, and the nearest I can find is at 1007.

The cross between the 50dma and 200dma is imminent on the Nasdaq. I don't know where the next chart resistance is, but I took the last two resistance points, around 1650 and 1800, and drew a line about equal distance above 1800. i figure that's probably as good a target as any, but watch out for the RSI. It's been a long time since it made it above 70, and won;t get above it without a fight.

I believe this is still the "old Dow", as the changes have not been officially made yet. Old or not, it finally made it to the 200dma, where it will undoubtably hit more resistance.

The Russell 2000, with 2 support levels, the January high and the early May high. It probably doesn't make much difference which one it is. Notice that price relative is weak here. That may be of some significance, but I'm not going to hazard a guess at what.

Not participating in this latest rally is the financial sector. I think that actaully might be good. I'll be watching a lot of the commodity ETFs, as I believe that the big money is rotating into commodities (it actually has been for a couple of weeks). The reflation trade appears to be on.

Markets such as we have been in for the last month or so suck in money from both sides of the trade, then whipsaw them to death. That is why it is so critical to take small losses quickly. In a market like this, you might take several small losses (and get frustrated as hell when a stock reverses right after it stops you out), but a few big gains will easily wipe those losses out.

I will have another extended new highs update shortly.

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