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Wednesday, October 19, 2011

Rumor of The Day - Yesterday's Rumor Was BS

 I am almost completely out of the rumor loop, but I gather that yesterday's "No, really" Euro bailout rumors turned out to be BS, and down we went today. Volume is preliminary here, but it does appear this misses being a distribution day, which keeps the rally alive. It looks like support is at or near the 50dma, which will likely be tested, and resistance is just above 1230. The Elder impulse bar is blue, but it is only the first one, and it usually takes at least two and usually three to signal a potential trend change. However, MACD histogram is dropping, so we may be in the midst of a pullback here.

The Nasdaq did rack up a distribution day thanks to AAPL. This is still well above the 50dma, which means it has been much stronger, but also means it has farther to fall. Note that the last buy signal lead to a pretty big rally. That may be a signal that the bear market is over, although we will have to wait and see what happen after the next red bar we get. A false sell signal will confirm that.

I would feel a lot more confident is the Russell 2000 was stronger, but it is above the 50dma and is also still on a buy on the elder impulse chart. MACD histogram has been pretty reliable since I have been looking at it, and it is dropping, so I think we have a pullback coming, it's just a question of when and how much.

Ticker Relative Strength Index (14)
XLE 60.26
XLU 59.21
XLP 59.12
XLY 58.66
XLK 58.48
XLI 57.01
XLV 54.76
XLF 54.36
XLB 51.34

Here are the sectors ranked by RSI. XLE was in last place just a few weeks ago, and is now the strongest as measured by RSI. I don't think that will continue for long (that is just a guess on my part), but it has made a very remarkable run off the bottom.

I'm not sure what triggered the recent strength, although I will take a wild guess and say everyone and there brother went short here when it was breaking down late last month. It is going to be running into resistance here very soon (assuming it keeps going up) and is probably pretty overbought, so I will be watching how it behaves on the pullback.

XLB was the other sector getting shelled in late September, but it has not bounced back nearly as hard, and it appears the pullback here has already begun. This is having trouble at the 50dma, which is not a very bullish sign.  A drop below 31 gives it very little support.

We are probably due for a nominal pullback here, and if this is indeed a new up trend (as it does appear to be), a buying opportunity. I will have the new highs update shortly.

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