The SMH is wedging up on falling volume and looks ready to roll over. This does not bode well for the continuation of the rally in October. Assuming that the Qs make a new high, if the SMH does not, this would create a negative divergence between the two indexes. Looking at the individual components in the SMH, most are either extended or beginning to move lower.
While I think the case for a continuation of the current rally into the end of October is still strong, the likelihood is that we are in for at least one more bout of selling before attempting to make new highs. The Qs will most likely retest the 41.05 level first unless they form a triangle. I will be using the next two to three weeks to lighten up as I do not like what I am seeing. Particularly the financials and credit card stocks do not look healthy. Many of the stocks in the Dow do not look healthy. We may be building a double top with a sharp selloff followed by a retest of the September highs in October. This is no time to be buying breakouts.
Remember the first rule of trading and investing is to preserve capital. The corollary to this is to protect profits.
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