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Wednesday, February 16, 2011

Inflation Expectations, And Other Fairy Tales

One of the problems with constant moves in one direction is it is near impossible to ferret out the pivot points, and it looks like that problem is going to develop here. We are now at levels not seen since September of 2008, with only minimal signs of potential trouble. MACD histogram is pretty weak, but that indicator is a derivative of a derivative, so I don;t put too much emphasis on that, but it will result in more blue bars on the Elder impulse chart, which, so far, have given us a lot of false signals. Because of the lack of clear pivots, I can only come up with a very tentative target, now at 1350.

The Nasdaq still appears to be the weaker of the two, but is strengthening, and it got big volume today. I will be watching for a resumption of leadership here, which will happen if the strengthening continues.

The bigger they fall, the harder they bouce. The Russell 2000 is now getting a big boounce after leading the recent pullback and finding support at the 50dma. This has a projection of just over 850, and I will be surprised if it doesn't get there.

For the last few weeks I have been ranking the sector ETFs by RSI, and noting the rotation going on in the sectors, as the leading sectors each week underperformed the following week, and vice versa. That did not happen this week, as XLI was the leader last week, and is again this week. It is very overbought, and clearly upward momentum is drying up for now, with the MACD histogram declining, giving us a cluster of blue bars. Even is this doesn't go down, it will likely not go up much until some of this overbought condition is woked off.

XLY is now number 2, and  believe it is up a notch or 2 over last week. Here again we see that the stuff that got hit hardest in last january got the biggest bounces, and judging by RSI and MACD, this has more room to go. This one may be the leding sector next week.

The FOMC minutes from the January meeting came out this afternoon, and were good for nothing but comedy. The FOMC actually acknowledged commodity prices rising ("going ballistic" may be more accurate), but they still see no threat from inflation. Why? No wage inflation pressure. Hey, no kidding, guys, a 9% unemployment rate and you can't figure out why there is no wage inflation pressure? That makes the plastic rice in China look positively sane by comparison.

I will have the new highs update shortly.

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