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Wednesday, October 5, 2011

The "Bottom Is In" Calls Are Coming

Despite two massive up days in a row, the SPX has yet to go green on the Elder impulse chart, which shows just how much damage was done during the last down draft. We have already had several false buy signals since the bear market began (which was one of the things that lead me to the conclusion we were in a bear market long before CNBC called one). If this follows recent form, the next green bar will actually be a better sell signal than a buy. but the main signal I will be looking for is the O'Neil follow through day. That will be he best indication we have hit bottom (although with the dozens of bottom calls I heard today, I doubt we get one). That watch starts on Friday.

The Nasdaq has again reversed the price relative line, which is heading up again, and if it continues, so will this rally.  
 The NYSE composite is still weak, but the price realtive has stopped dropping and is going sideways. We just might be in for a trend reversal here.

Ticker Relative Strength Index (14)
XLK 51.26
XLY 49.04
XLI 48.54
XLV 48.31
XLU 47.88
XLP 47.38
XLF 47.15
XLE 46.21
XLB 46

Here are the sectors ranked by RSI. XLU has fallen back to the middle of the pack after leading for several weeks.

XLK is the new leader, and this has been outperforming the market significantly until just before the last collapse began. Whatever it was that was causing the weakness in the Nasdaq recently, it apparently wasn;t big cap tech stocks, as they have performed with the market recently.

XLB just barely beat out XLE for last place. The weakness of the two basic materials sectors means either we just found a huge new supply of oil, gold, aluminum, etc, so the prices are dropping; or, the dollar is strengthening due to deleveraging, dropping the prices of commodities in the process. Of course, the third possibility: nobody can afford to buy them anymore, so demand is dropping.

As I said, I am hearing bottom calls all over the place, which means that we probably have not hit bottom.

I will have the new highs update shortly.

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