XLF Buy Signal

As the above chart shows, the weekly macd has given a positive divergence buy signal. I won't quibble over the -.002. I have noticed that often after such a signal the initial response is for the market to sell off, so we shouldn't be surprised to see some pullback next week. However, I think the financials are in a position to lead the upcoming rally by failing to retest the March lows. The upside targets are 12.79 and 16.00 (around the 50wema).

We also got macd buy signals on the daily charts in several indexes this week, and in particular, the Qs. With the Qs at the 50dema, there is no need to rush in. Declines in almost every stock index, whether or not to new lows, will set up a very nice long pivot at the current rally highs. Traders could consider taking initial positions on a retest of the lows, and go fully long on a breakout above the March highs.

The market action on Monday and Tuesday should determine whether we have seen the low of primary wave 1 or not, but it appears that the upside in wave 4 for the Dow and other major indexes in limited while a close above 7449 in the Dow would put the bulls in the driver's seat.

IBD issued a Market In Confirmed Rally call today. However, as I pointed out in a prior post we need to see additional follow-through to confirm the call. While the macd has turned positive, today's meager rise on lighter volume does not qualify. Should markets move higher Monday morning by more than 1% on higher volume intermediate term traders could begin positioning on the long side with caution. Caution means smaller position sizes and fewer positions. Let the rally prove itself. There are few leading stocks breaking out at the moment so there is no rush. Most of the action has been in beaten down stocks such as STX and WYNN. I am looking to exit long positions in a few of those names on Monday or Tuesday.

I hope you have been building your watchlist of stocks to buy as the time is getting near for a sizeable rally. The first target for the rally once it is underway is the 200dema. For the Qs, it is about 34, and for the Dow about 9000. The first touch of the 200dema should be sold as a correction will most likely follow.

As always, price rules. Good trading next week.