Friday, October 16, 2009

Breadth Fading


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.

5 comments:

dave said...

The intermediate-term trendline break in LQD is an important harbinger.

More important than anything that's happening with TLT.

Agree ?

dave said...

The stk mkt usually hiccups at the early signs that the Fed may be raising rates. However, intermediate/longer-term it’s a bullish sign because the Fed is saying that the economy is healthy enough to raise rates.

The stk mkt just has to get used to the idea especially if it's happening before they thought that it would.

R. Craig Pritchard said...

Yes agree, the Feds activities influnce the TLT, but it does look like the LQD is ready to roll over.

I would want to see a break below the Jan high at 102.60 before drawing any final conclusions though.

R. Craig Pritchard said...

I think alot of people have trouble with this logic, but it is correct. Rising rates, rising market - falling rates, falling market. It has been the game for the last 30 years.

I think what throws people is the lag between the end of rate decreases and rate increases that gives the illusion that it is the low rates that are supportive of a rising market.

dave said...

The Fed, if it's smart, doesn't do it until it's safe to do. The mkt gets spooked if it's sooner than expected.

If LQD continues downward, & the stk mkt does not react or has a shallow reaction it may because it had the timing figured out.

And one has to wonder given the non-reaction to the Barron's cover.