Wednesday, December 9, 2009

Dull and Duller

Never short a dull market is an old adage, and perhaps it is fitting for the current environment. That said, I remain 1/2 short against the rally highs after re-entering short positions last Friday. The NYSE Advance/Decline line is not giving us any indication which way this market is going to go, but the MACD of the A/D line is starting to roll over which may point to a downside breakout.

A second clue is that the Dollar index broke out above its downtrend line on Friday and is holding above it. It is only normal to see a retest of that line, which is in progress. More upside in the Dollar is expected and that should correlate to lower stock prices.

Oil is near the limit of its downward correction from the October high, stopping right at its 200dema. It must hold above the September lows to prevent a retracement to the $50 to $55 level. Also, oil is coming in on a 55 day cycle low, a pattern that has been in place since the April low. The overall character of the decline from the October high is corrective, not impulsive, and one possibility is that all of the action from the June high is part of a much larger running triangle. In that case, the current downmove is wave C of the triangle. Even so, oil should not move below the 61.8% RT of wave (B) (7/13 low to 10/23 high) which is 67.53. This level is still above the September low. Therefore, any sustained move below that level must be considered as a larger correction to the 50 to 55 zone.

No comments: