Friday, October 16, 2009
The ratio adjusted summation index for the NYSE has fallen below its trendline from the March low indicating that breadth momentum is fading. This confirms my own indicator which is showing a negative divergence. This does not mean that the rally cannot continue, but one analyst has labelled this occurence as the "canary in the coal mine", meaning that the rally is losing steam even if it manages to make a new high.
At the moment, we cannot be sure this week's high marks the completion of wave (C) or whether it is just wave a of 5 of (C). Whether it is the high or not the next rally should be sold. Only long term or core positions should be held through the upcoming correction. Short term and intermediate term positions should be sold, in my opinion, on any strength.
For intermediate term traders, a break of the October low or a new sell pivot below the 61.8% retracement of the October up move will confirm the top. For short term traders, a new MACD sell signal, break of the 9/23 low, or new sell pivot may be used to open short positions. We are not quite there yet, but may be by the middle to end of next week.
I am looking for gold and oil to continue higher with occasional pullbacks until later in the year. If conditions change I will do my best to warn you.
Posted by R. Craig Pritchard at 5:10 PM