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Wednesday, October 12, 2011

One More Time

 Here we go, right into the zone where the market has failed the last 3 times it has entered it: 1220 and above. Is this time different? So far, it does not look like it. Volume is shriveling up again (although today was not bad, I am going to wait until I see if it came on the early rally of the late sell off).  Here on the Elder impulse chart, we are still on the buy signal we got a week ago, and MACD histogram is still rising, so there is no reason to believe a collapse is imminent, but the market is going to have a touhg time here. On the positive side we are still holding above the 50dma, and the 20dema is moving up. On the negative side there is still no whiff of a follow through day and leadership is very thin. About the most bullish scenario I can imagine is a small pullback, or at least sideways action, for the next few days.

 The Nasdaq also got a valid buy signal a week ago and is looking quite a bit stronger, although it did lag just a bit today. One of the most bullish chart patterns is the big "W" followed bu a small "v". We have the W, now we need to see if the v forms here. If not, and we keep going higher, it could well spring a very nasty bull trap.

 The Russell 2000 had a very good day today, as did most of the weakest sectors of the market. While that is good for the bottom fishers, it probably does not bode well for the strength of this rally.

Ticker Relative Strength Index (14)
XLY 60.36
XLK 60.27
XLP 59.38
XLI 58.47
XLF 55.41
XLV 55.27
XLU 54.02
XLB 53.85
XLE 53.38

The sector relative strength was a surprise, at least to me. XLY has really gained a lot of strength in this last rally, XLU dropping off is not a surprise.

Here is XLY, whihc has traversed the entirety of it's trading range in a little over a week, and actually came close to breaking out today. Why this was so strong is a mystery to me, but it sure looks like we might be seeing rotation into this.
XLE is still the weakest sector, and although it did get a pretty good bounce this eek, that was from a very low level. This is now facing possible resistance at the 50dma, and is getting into the area of price congestion from August and September, and will have a hard time getting through that. I think this will need a consolidation for at least a week or two to build up some strength. Let's see if the rest of the market cooperates.

When a market is trading a pattern, no matter how obvious, you have to stick with it until it stops working. I sat out the last two moves (the last down move and this up move) because I anticipated that it would stop working then. It hasn;t, so I will be looking to go short if this up move starts sputtering.

I will have the new highs update shortly.


Y.Y.B.C said...

Just watch'ed IBD's market wrap, they are calling it a Follow Through Day. Personally I think it's a bad call, any thoughts?

David said...

They must be seeing something I didn't. Wednesday is the only day I can't watch the video, so it figures they would call it then. The late sell off would have been enough to keep me from calling it, especially since most of the volume came then. That and the fact that there are no good bases being formed and very few real leadership stocks tell me the market isn't ready for a rally. Then again, every time I have argued with IBD in the past, I took a pretty good beating, so I will cautiously assume they are right until proven wrong. Thanks for the heads up.

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