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Wednesday, October 26, 2011

Signs Of Accumulattion

Back in July when the market collapsed I thought a retracement up to 1250 was very likely. Although it has taken 3 months to do it, we are now there, and it looks like we may be stopping here. We have a couple of blue bars on the Elder impulse chart, which often (but not always) is a warning of a trend change coming. What it doesn't tell us is how long or how deep any drop will be, but I suspect the 50dma is most likely. However, we do have to pay attention to volume, which was quite good today, and we got a bump in CMF, so it could be that the big money, while not making it obvious, may be doing some buying here.

The Nasdaq had another bad day (in relative terms) thanks to another leader cracking, this time AMZN. I am going to be watching the price relative line: if it breaks below that horizontal line, it might be time to go short. 

The Russell 2000 is also having some tough resitance here, but the price relative line is rising. unfortunately it is well below where is was last tme price was this high, and I won't get especially bullish until it breaks out. 

Ticker Relative Strength Index (14)
XLE 65.24
XLP 60.77
XLV 60.3
XLI 59.96
XLU 59.61
XLF 58.75
XLY 58.49
XLK 58.41
XLB 57.57

Here are the sectors ranked by RSI, which indicates strength over the past 20 days (one month). A month ago, XLE was the weakest and about to come unglued, now it is the strongest. XLU has dropped to the middle of the pack, despite the fact that RSI is rising, it is just rising more slowly.

XLE is now right into resistance, and actually closed above the previous high by a bit. It also has that cluster of blue bars, which might be a signal this is going to pull back. That is when we will need to see which stocks hold up and which ones don't.

XLB has alo made a decent move in the last month, but not decent enough to get it out of last place. One thing I have noticed is that high and low ranking sectors tend to move toward the middle, while the middle sectors move up or down (if I could just figure out which ones!). Chances are this will outperform 3 or 4 other sectors in the coming week, but unfortunately my crystal ball has a crack in it and is useless.

So far, the market has stalled, but shows no sign of collapse. In fact, it is now showing signs of accumulation, and we may see a buying opportunity here with a pullback.

I will have the new highs update shortly.

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