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.
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