It looked like we were headed for a pretty sizable pullback, but the market reversed about halfwayt through the day and end up marginally. On the Elder impulse chart, the market is back to a buy signal after a brief flurry of blue bars (notable in the fact that, despite bearish sentiment, it never flashed the sell signal). I have had doubts about how strong this rally will be, but according to this it looks like it will last longer than I expect. I am still thinking that 1307 will be the ultimate target in the short term, but it also looks like the sectors that lead the last leg up will not be leading this leg.
The Nasdaq isn't helping much here. It still has not busted out past the November high, let alone the October high, and price relative, while it has stopped dropping recently, has not turned up.
Even the Russell 2000, which had been showing signs of strength, is now weakening and the price relative line, if it breaks the horizontal line I have drawn, will start a new down trend. With both the Nasdaq and Russell lagging, any rally won't go far or last long.
| Ticker | Relative Strength Index (14) |
| XLV | 62.69 |
| XLI | 60.84 |
| XLP | 60.4 |
| XLY | 59.3 |
| XLB | 58.91 |
| XLE | 58.6 |
| XLF | 57.33 |
| XLK | 55.64 |
| XLU | 50.63 |
Here are the sector ETFs rankled by RSI, with a huge surprise: XLU, which had been among the leaders for months, is now in last place.
XLV is now the leading sector, at least for the last 20 days, and reflects the defensive stance the market has taken. Notice that despite going up the last week or so, it has performed exactly with the market. Not the type of leadership we need for a bull market.
XLU probably would have been the leading sector, but it really took a big hit yesterday while all the others were rising. It looks like rotation is beginning, and it's coming out of here. now we need to find out where it is going.
So far 2012 is beginning with a weak rally, which was not unexpected. I suspect it will go on just long enough to set up the dumb money to have the rug pulled out from under them.
I will have the new highs update shortly.
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