Sunday, November 8, 2009

Technical Update 43.09

The S&P 500 posted gains on all 5 days this week to retrace nearly 61.8% of the prior decline. The advance was achieved on extremely low volume, and with decreasing participation. The Russell 2000 managed to retrace only 43% of its decline, while the larger cap Dow 30 made up 83% of its previous fall. The generals are charging up the hill while the troops lag behind, paralyzed with fear.

Tops are a process, while bottoms are an event. And this topping process appears to be no different. Especially bearish would be for certain indices (like the Dow) to make a marginal new high early next week, while the others fail to confirm. The bearish divergences noted in these pages two weeks ago would become even more pronounced. But that is not necessary. The oversold conditions have been worked off by both time and price and should not be hindered from continuing their descent from fantasy land. New highs in all the indices would indeed be frustrating (recall August to October 2007). But the technicals all point in the same direction, and evidence mounts almost daily that market action is conducive to lower prices, not higher.

Below are hourly charts of the Dow Industrials and Russell 2000 respectively. Notice the extreme divergence.

As mentioned earlier, the internals of the week's advance were extremely weak. Below is the up/down volume ratio. The blue line is a 10 day moving average of the ratio. Lower readings above zero indicate weaker participation on rallies.

The commodity complex has been weakening despite Gold's continued strength where a non-confirmation in silver may prove difficult to surmount. Below see the CRB index and Silver.

That's all for now.

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


Occdude said...

All those charts look like they're in an uptrend (except the Russell which looks like a double peak reversal) or at best neutral and establishing a nascent trend.

Gold is on fire, silver is in the bullpen with the dominant theme being "currency crisis dead ahead". The CRB looks like a solid "cup with handle" and the Dow still has an uptrend in process but may be developing something downward its too soon to tell.

Its easy to try and get ahead of the trend, especially when you sense a revearsal, I would caution against jumping the gun, because this rally has a lot of momentum that needs to be countered.

The sails I would say are flapping right now trying to gauge a new direction. Lots of contradictory information coming out making it hard to predict the new course.

I would call this period twilight and as you know, anything can happen in the twilight zone.

Mike said...

I have also been watching the Russell closely, as it has lagged considerably over the past few weeks. Volume has also been rather low on all the big up days. The market is doing a good job though of convincing as many people as possible that we are in a bull market. But almost all bear markets end with a retest of the lows, and I do not expect it to be any different this time.

View My Stats