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Wednesday, August 28, 2013

Crisis Mode

Since the beginning of this month, we have been on a valid sell signal on the Elder impulse chart, which means we are in a bearish phase in the market. Yes, I know that is now obvious, but it is significant in that we have to adjust our strategies accordingly. On the long side, I will be looking for strong stocks that are bouncing off support levels, and on the short side, weakening stocks that are failing at resistance levels. Today we hit the S1 pivot point, almost on the nose, and with two trading days left in August, it is un likely we will go lower. It is also highly unlikely we will go higher than the P pivot point. While that doesn't much help us for trading (unless your time horizon is 2 days), it might help us position for September. We have a geopolitical crisis going on, which will not likely get solved any time soon, so right now I am leaning heavily bearish going into next month.

After a pause, the Nasdaq has begun to outperform again. This has yet to break critical support, and also has yet to flash a valid sell signal. This is no doubt holding up the market and may be preventing a much more severe drop, but it may not be enough to reverse the trend.

The NYSE, despite beginning to out perform, is not in much better shape than the SPX. Interest rates are going to have a much higher effect here, and they are headed higher, so this is likely headed lower. However, this is also heavily populated with energy stocks, which will do well until the Syrian crisis is resoved.

Ticker Relative Strength Index (14)
XLE 56.96
XLB 47.7
XLK 42.57
XLU 41.94
XLV 41.83
XLY 41.68
XLI 41.05
XLF 35.25
XLP 27.43

Here are the sectors ranked by RSI. It is highly unusual that in such a weak market, the defensive sectors are doing horribly. That is troubling.

Thanks to a rapid rise in crude oil, XLE has popped into first place. It will likely be in first place for some time, at least for the next week if not longer, as the Syrian crisis will drive oil to unknown, but probably much higher, levels.
The free fall in XLP is terribly troubling to me, since this is one of the 2 sectors that do best in market correction. Rising interest rates could be the culprit, but I would never have expected this to get hit this hard. his can''t be good.

I have been specualting for months now that the marke was possibly forming a long term top. While this correction is by no means proof, if it gets much worse, it could be a long time before we see 1700 again. We are just a few days away from September, historically a weak month, and with the headwinds facing the market right now, likely to be weak this year as well. It will take a favorable resolution of the Syrian crisis to change the market's fate, and I don't see that happening.

I will have the new highs update shortly.

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