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Wednesday, October 23, 2013

Time For A Rest?

 A pretty incredible run in the market has apparently stopped, but whether this is a pause, a pullback, or the start of a correction, is unknown. There is a severe lack of distribution on the SPX, and that means it is unlikely we are beginning a correction, and we are well short of the R2 pivot point, so for now it looks like, at most, a minor pullback. R1 is now support, if we go back that far, but it is likely we will take another shot at R2 before month end. On the Elder impulse chart, it is pretty clear we are in a bull phase, and it is very likely, if we get a sell signal in the next few days, that we will begin another move up as soon as the market is ready. Earnings season has so far been a disappointment, but not yet to the point where it is affecting the overall market.

The Nasdaq has now been slightly lagging the market for almost a month. That has not prevented a bull move, but it may have kept it contained, and may be an indication of some weakness to come. Despite the lagging status, this still looks like the big money boys are accumulating it, so we may be ready for another up move after a brief pause. One problem here, the R2 pivot is now resistance after it was broken from below in the last couple of days, and it may be tough to get above it a second time.

The NYSE composite is going exactly sideways in price relative. Other than being closer to support than resistance, it is nearly identical to the SPX. If we are going into a period of minor weakness, this could out perform a bit, otherwise, it isn;t telling us much about what is going to happen next.

Ticker Relative Strength Index (14)
XLP 71.41
XLI 67.47
XLU 65.87
XLB 64.24
XLK 64.08
XLV 62.99
XLY 62.35
XLF 60.58
XLE 57.79

Here are the sectors ranked by RSI. Once again the market appears to be going somewhat defensive. with the formerly lagging XLP and XLU now among the leaders.

XLP has a pretty dramatic up trend in progress, but looking at the price relative line, it is not that impressive.   However, the fact that the price relative line has stopped dropping and is now threatening to rise is an indication the market is taking a more defensive stance.

XLE was a leading sector until two days ago, when the price and price relative both took a plunge. That should have been expected, with oil in a rather extended swoon. It was a mystery why this kept rising in the face of falling oil, but that mystery is now over.

After an extremely strong move up, the market has paused. We could be in the midst of a minor pullback before another move, and may see some rotation coming out of it, but we are also in the midst of earnings, which will ultimately tell the tale. If they don;t get better than they were last quarter, we may be in for something worse.

I will have the new highs update shortly.

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