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Wednesday, August 31, 2011

Early Resistance

Somebody pressed a button and knocked the market into positive territory at the last minute, otherwis we might have had a pretty nasty reversal to the downside. This morning we had a very strong rally that went right into 1230, where we apparently hit some resistance, just short of the 50dema (the simple average is now just above 1250). What the late buying prevented was a change in the Elder impulse chart, which possibly would have gone blue, but as it is now, it is still green, and MACD histogram is still rising. This may or may not turn into a bull trap, but if you were watching the leading stocks today, you saw several collapses, so we may have just hit a top for now. 
The Nasdaq was going to be the first to test resistance, and so far it has failed. It was rejected after briefly breaking through, and closed below the open, sending CMF back negative. We still have the green bar here, an MACD histogram rose as well, but may be about as high as it is going to go for now.

The Russell 2000 has a long way to go to catch up with the rest of the market, and today did not help it at all. It did successfully test the prior resistance, which is now support, but is way off the next level of resistance, and is now about to contend with the 50dema.

Ticker Relative Strength Index (14)
XLU 59.22
XLP 56.8
XLV 55.67
XLY 53.42
XLB 51.63
XLI 51.28
XLK 51.05
XLF 50.32
XLE 50.08

Here are the sectors ranked by RSI. There aren;t too many changes from lst week, the biggest being XLE dropping to last place.

XLU has actually had the lowest gain among the sectors for the last week, but it was good enough for it to hold on to first place. This may actually gain relative is the market is topping out here and starting a pullback. It is close to breaking out to a new high, but I think that is going to be a major struggle.

XLE slipped into last place because it was only the 4th best performing sector this week (the best was XLF, which kept it pout of last place). one of the signs of a weak rally is that the weakest sectors make the biggest moves up, and we are certainly seeing that now. this is now right up against some serious resistance, so how it behaves tomorrow may very well tell us about the immediate future direction of the market.

We may be now seeing the resistance I was expecting at 1250. We may fight through it for a while, but ultimately believe we will fail somewhere in here, just in time for September, historically the worst month of the year for stocks. We might be in for another wild ride.

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