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Wednesday, November 13, 2013

The Market Makes It's Move

Yesterday I made a rather bold prediction: that the first move out of the trading range will be in the wrong direction: that is, the market will reverse sharply after that. Well, we got that move today, and it was a breakout on the up side. The problem now is, there is really nothing on this chart to indicate anything like a reversal is coming: in fact, we are on a buy signal on the elder impulse chart after a short consolidation of a previous buy signal, normally a bullish condition. If we get he reversal, I will try not to break my arm patting myself on the back; if we don't get it, change the word "bold" to "stupid".

We are on a buy signal on the Nasdaq, and since the last sell signal was a false alarm, the Elder impulse chart gives the benefit of the doubt to the bulls. Medium term price relative is still in a down trend, but we may be seeing it reverse. If that is the case, I will have egg on my face.

Price relative on the NYSE composite is dropping like a rock, and that has to mean something, but throughout 2013, I haven't been able to figure out what.

Ticker Relative Strength Index (14)
XLI 68.89
XLK 68.81
XLY 64.18
XLP 63.41
XLV 62.56
XLB 59.65
XLF 55.58
XLE 54.67
XLU 53.9

Here are the sectors ranked by RSI. None are over 70 (last week there were 3), but the defensive sectors have moved down, so his is not telling much about whether we are going into a correction or not.

XLI is now in frist place but has been a leading sectors for several months now, and shows no signs of slowing down. It is getting close to a resistance level here, and MACD says it is losing momentum, but slowing down is certainly not the same as stopping, and it is nowhere near a reversal sign.

XLU has dropped back into last place. In normal years that would be bullish for the market: in 2013, it has not been as clear, but I suspect it is bullish for the market now. This is one of the few charts on a sell signal, and I think it highly likely this is a false alarm.

This could be the moment of truth: I normally don;t even attempt to make market calls, but I made one this time, and we may find out why I don't make them. If I am wrong, I could use a lot of colorful language and blame the Fed, but in the end, if I am wrong, I'm wrong, and I better make sure I'm not leaning the wrong way.

I will have the new highs update shortly.

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