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Wednesday, May 15, 2013

Rotation Coming?

Now things are going to get interesting: I have had a target projection of 1660, and we are now there. To call this resistance is probably a stretch since the market is at all time highs, and the last couple of days have been pretty good gains on increasing volume, but, for several reasons, I suspect that we are going tom see at least a sideways trend here for a few days, or even a possibe pullback, although a correction is really not indicated here. The market is getting into overbought territory, and as we have seen in the recent past, it can work that off without much of a drop.

The price relative line on the Nasdaq has made a sudden reversal and is dropping again. That could be a temporary situation, but "temporary" doesn't really tell us how long. This has also hit it's target, so it, too, could see some resistance here. Volume, however, is still pretty high, relative to the other indexes, so if it does hit resistance, I don;t expect much of a drop.

The NYSE composite is just short of it's target, which might mean it is not done going up. Volume is quite high here as well, so it's quite possible we will see a move up in the morning that does hit the target. Price relative has resumed it's drop, but in recent months, that really hasn't meant much.

Ticker Relative Strength Index (14)
XLY 78.35
XLF 73.87
XLV 71.48
XLI 71.09
XLP 70.75
XLK 68.57
XLB 64.55
XLE 63.92
XLU 52.79

Here are the sectors ranked by RSI. Once again there are 5 sectors with an RSI over 70, a situation which will likely lead to some rotation out of the leading sectors and into the lagging sectors.

XLY is still in the lead, but I think it is highly unlikely to be leading next week. Price relative has flattened out and is possibly going to start dropping, and this is at the target projected for it. While I don't expect a big drop here, I think the best case is that it will rise at a much slower rate. Most likely, i will pull back slightly: I will watch this for an Elder impulse sell signal, which should be the sign that it has bottomed out.

XLU is in the opposite condition: Price relative is starting to rise and this bounced off the 50dma and is likely to move up here. This will probably not be in last place next week.

About the best the bears can hope for right now is a pullback in the market which will be rotational in nature. While the market is overbought, that can be worked off with a slight pause here. There is no reason yet to belive any correction of decent size is in the cards.

I will have the new highs update shortly.

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