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Wednesday, March 7, 2012

Intervention Already?

It didn't take long: the market took a 1% dive and there is already talk about a Fed intervention. That resulted in a bounce today, but on the chart it doesn't look like it will last that long. It appears that we now have a valid sell signal on the Elder impulse chart, and are very likely to do some corrective work here. We bounced off the mid point of our most recent trading range yesterday, and while it is conceivable we could retest the high at 1378, right now it looks pretty doubtful. A test of the 50dma is much more likely, and it is possible we could go as low as the 200dma, which is just now starting to rise. CMF is now in a steady decline, and it looks like the dip buyers have not shown up yet.

The Nasdaq is in slightly better shape but still has a valid sell signal and a declining CMF. I suspect a trip to the 50dma is in the cards for this as well.

Last week the Russell 2000 flashed a third sell signal in a month, and this one was the charm. It has now tested the 50dma successfully the first time, but I expect another test soon, and the next one might not be so successful.

Ticker Relative Strength Index (14)
XLK 63.13
XLY 62.54
XLP 60.01
XLF 53.54
XLU 49.53
XLE 48.48
XLV 48.19
XLI 44.88
XLB 38.81
Here are the sectorss ranked by RSI. XLK has been leading for several weeks now, but we are seeing some changes in the works. XLU has moved up, which is probably a warning of coming market weakness.

 Had it not been for yesterday, XLK would have an extremely strong chart. It is still pretty strong as it is, and really shows no signs of big selling. If this can stay as strong as it is now, any correction in the market will be short and shallow.

XLB hgas now slid into last place. This peaked, in price relative, on the 1st of February, and went into a long slide. CMF peaked almost 3 weeks before that. It is pretty clear that the big money is bailing out of this.

I have no idea what the current IBD market status is (they didn't say on yesterday's video, and I have not seen today's paper), but at best I would say "market under pressure". Some parts of the market have already entered a correction, and the other parts will probably follow. So far I'm not looking for a really big one, since the Fed is already hinting at intervention.

I will have the new highs update shortly.

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