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Wednesday, June 5, 2013

Do Or Die Support

Here we are again, at the 50dma, a place which has been firm support for the last 6 months, and it is quite likely it will bounce here again. However, we do have some potential problems: RSI is at the lowest it has been in 6 months, volume is, while not distribution, still high, and leadership is starting to get hit. Normally, in a bull market, a sell signal on the Elder impulse system would indicate a bottom and would be a buy signal: here, it did not, and while it is not yet a valid sell signal, it is also not proving to be a false alarm.  Normally I would be buying hand over fist at the 50dma, but right now, I will wait to see if it holds, because there is a much higher probability this time that it won't.

The Nasdaq is still leading, as it has been since mid April, and that is bullish. This has gap support just above the 50dma, so it is possible we won; make it to the 50. That is, if the rest of the market bounces as well, which is in doubt.

The NYSE composite broke not only the 50dma, but the support at the April high, and is no longer in the upper range established with the early May breakout. This has a heavy concentration of high dividend, low beta stocks that are getting creamed with rising interest rates,  so even with a bounce here, we probably won't see the leadership we saw here in April and early May.

Ticker Relative Strength Index (14)
XLK 48.76
XLF 47.6
XLI 44.71
XLE 44.46
XLB 41.95
XLY 41.91
XLV 41.89
XLP 38.14
XLU 25.85

Here are the sectors ranked by RSI. I didn;t get a chance to look at this last week, but there aren;t a lot of changes from two weeks ago, except that the RSI scores are much lower. We only have one sector with an RSI under 30, and at a bottom I would expect 3 or more under 30, so at least according to this, we still have room to drop.
XLK has moved into the lead, no surprise since the Nasdaq has been so strong of late. This also has gap support, then the 50dma below that, so it is likely to get a bounce in here somewhere. If it doesn't, and slices through the 50dma, i is time to bail out.

XLU is still in last place, but is finally showing signs tha the carnage may be running out of steam. It is just above the 200dma, a perfect place for support, and the price relative has stopped falling. If this is starting to turn, that may keep the rest of the market from falling into a severe correction. I would not be willing to bet on that right now.

Now is the time we can expect the market to turn, but I see signs that there is a good chance it won't. We should know more tomorrow: a strong bounce will likely lead to another move up, while a weak bounce will give a chance to get out. No bounce will be real trouble: he market is due for a sixzebale correction, and it just might be coming now.

I will have the new highs update shortly.

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