Monday, April 27, 2009

Technical Update 15.09

The markets bounced back from a sharp selloff on Monday to finish the week near their highs and frustrate bears even further who believe "it can't go higher." I had been expecting a downward correction to wash out some of the optimism and allow for the market to prove as the "path of greatest frustration" for the most people as possible - a common characteristic of countertrend moves.

My approach continues to be "hands off" as I wait for either of my previously mentioned conditions (time or price) to be met before turning bearish again. Ideally, the market would wind higher in a series of fits and starts for 5-6 months and give all sorts of negative divergences while showing optimism extremes akin to those at the all-time highs. Just like the market did not perfectly accommodate my downward expectations, it will likely not display all of the above when it finally puts in a top. For those wishing to shed some long exposure or add short exposure, it would probably be a good idea to do it gradually, rather than to wait for a certain condition to be met and flip everything around at once.

The S&P has proved resilient a number of times at it's 20 day EMA. A close below that level would communicate to me that strength is weakening and a fairly deep correction could be at hand. It is sitting at 836 and rising. A close below 840 would be my line in the sand if I were toying with the long side (which I'm not).

Do note also that the Nasdaq's relative strength has already brought it in contact with its 200 day EMA. That alone does not mean anything. But used in combination with other indicators, a strong rejection of price from that level could be telling us that it's time for a rest.

The Emerging Markets appear to be showing signs of potential negative divergence after being among the strongest market sectors of the last 6 months.

The Euro/Yen cross has proven to be a useful tool for assessing risk appetites. As the markets have carried higher in the last few weeks, the Euro has been weakening relative to the Yen. This could be yet another fly in the ointment for a continuation of this push.

Gold had a fairly strong week. My expectation is still for lower prices into the summer.

That's all for now.

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