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Wednesday, October 30, 2013

Correction Watch Condition Yellow

Did I mention we has an FOMC decision today? Looking at the chart, you wouldn't know it; volume was not much, and other than about 15 minutes after the announcement, there wasn't much movement, either. The market was already down by the time the announcement was made, dropped a little more, than came back up to just about where it was before the announcement. Fortunately i was off line when the announcement was made, otherwise I might have been tempted to read it, but I actually have no idea what they said, and don;t intend to find out. This may be premature, but the market does appear ripe for a roll over, and I suspect we are headed down for the next couple of weeks.

The Nasdaq has been flashing warnings for most of this month, and I think it is also about ready for a rollover. If it is like prior down moves, it won't be nearly as severe as we will likely see on the other indexes. The price relative line continues to move down, and until that reverses, I am in correction watch condition yellow.

The NYSE composite also appears ready for a rollover, even without the Elder impulse sell signal. We have had a pretty long cluster of blue bars on all indexes, and it is pretty likely we will get the sell signal very soon.

Ticker Relative Strength Index (14)
XLP 71.34
XLK 71.16
XLI 69.63
XLY 66.87
XLV 64.91
XLU 63.4
XLB 62.26
XLE 61.39
XLF 61.38

Here are the sectors ranked by RSI. We have only two sectors abve 70, but that may be enough to tip the market over. We could also get enough of a rally to get one or two more sectors over 70, but either way, we are likely to correct quite soon.

XLP began outperforming the market earlier this month, reversing a lng down trend in price relative and giving us a warning that the market was turning defensive. In the meantime, it also made one hell of a nice gain. Let's see how this behaves if the market does correct: if it continues to out perform while dropping, we may be in for a longer correction than we have gotten all year.

XLF is in last place, which is also something I would expect to see in a market about to roll over. Like it or not, I do believe a correction is imminent.

The FOMC failed to juice the market today, and it is likely we are about to see at least a minor correction, and at worst the start of something bigger. A this point there is no way of knowing how long or how far down we go, but the probability is we are headed down very soon.

I will have the new highs update shortly.

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