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Wednesday, July 27, 2011

Trouble Comin' Every Day

Well I'm about to get sick
From watchin' my TV
Been checkin' out the news
Until my eyeballs fail to see
I mean to say that every day
Is just another rotten mess
And when it's gonna change, my friend
Is anybody's guess

So I'm watchin' and I'm waitin'
Hopin' for the best
Even think I'll go to prayin'
Every time I hear 'em sayin'
That there's no way to delay
That trouble comin' every day
No way to delay
That trouble comin' every day


 I think it was 1966 or 67 that Frank Zappa wrote that song,  but it sure seems to apply today. I could say we don't have a day like this very often, but actually, since June, we have had them often, 3 times, to be exact, and they all lead to sharp, but short, legs down. We are dangerously close to critical support at 1295, and this time the market might not be buying the dip. One thing is for sure, the antics in Washington, D.C., are starting to weigh heavily on the market, and even earnings season can't get a decent rally going. You want trouble? How about a 2% drop in the SPX but a 1% rise in TNX (yield on the 10 year treasury)? That is trouble.

When the leading index slices through the 50dma like it was butter, that's another sign of trouble, especially when it does it after closing, oh, about a mile above it yesterday.

You could say this came without warning, that is, unless you were watching the Russell 2000, which starting yelling "trouble!" on Monday. Even before that, the weakness on the way up was a sign that something was wrong. Now it looks like another test of the 200dma is coming up. like the boy who cried wolf, one of these days, the dip buyers will not be there to rescue it.

Since I missed yesterday's post, I have a bonus chart today, the U.S. Dollar index (via the ETF UUP) which yesterday came awfully close to testing that early May low. You would think tht with the dollar this low, the market would be testing it's May high, but at some point a dropping dollar isn;t going to help the market anymore. The trouble here is, a rising dollar will crush the market. Hey, Bernanke, I know you have tried almost everything, but maybe you could try the one thing you are supposed to do - you know, "price stability". It might actually work.

Ticker Relative Strength Index (14)
XLU 53.94
XLE 53.91
XLK 49.82
XLY 46.53
XLB 42.48
XLF 42.1
XLP 41.49
XLV 35.76
XLI 35.22

Here are the sectors ranke by RSI. Notable here is that XLF is now in the middle of the pack. that is not because it is doing well, it is just dropping less.

XLU is again the leading sector, which is a good sign that the market is in some trouble, as this is where the mutual funds will rush in into when they see trouble coming. When this starts really dropping is when the proverbial crap hits the fan.

XLI would have been in the middle had it not totally collapsed in the last 22 days. I don't know what happened here (I suspect GE, which is the biggest component), but this is really coming unglued.  Trouble coming every day.

I will have the new highs update shortly.

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