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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2 comments:
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.
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.
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