Everyone is really going to have to be on their toes over the next few weeks. And why? Because the S&P either is just going to come back and fill the gaps I have mentioned before and then head higher again or it is all over. And I mean over. For at least a few months anyway.
Looking first at Wall Street XLY (Consumer Discretionary). This was the sector that gave an early signal of that last move up but has now formed a nasty looking top. XLF (Financials) which the market needs to bring back confidence, has been decidedly weak. I need both these sectors to signal confidence can return.
There has been considerable talk among technical oriented analysts that the Advance/Decline of Wall Street has been hitting new highs so all is well with the world. However, I can’t agree with this. I have mentioned before that I calculate my own A/D but I use actual money going into rising and falling stocks on the NYSE and that has not confirmed the recent rally. So this is another chart I need to give me some bullish signals before we can see a rally.
There are a number of negative divergences showing up. Another one – at the previous high nearly 80% of stocks were above their 50 day MA – now it is less than 60%
I have mentioned over a number of weeks that the most worrying chart to me is London. I know there are probably extenuating circumstances and also I use the FTSE which is just the major stocks that are probably governed as much by the movements in Sterling as they are the economic outlook for the UK itself, but I do not like that chart. I always keep a close eye on London as I remember a time when it was the first market to give a bearish signal of an important top and on that occasion it led to the 1987 crash – probably before most people that are trading were even around, let alone following the markets!!
And don’t ignore China. I follow the Shanghai index and it is really worrying me.
Also remember another point I have made before and that is all the markets are governed by one big pot of money so they all move very much together – yes some outperform others and leadership can change. This leaves Australia vulnerable to overseas trends and despite the fact that I can make a more bullish story on the XJO than say London, if the other major markets head lower, then we will definitely follow
But it isn’t all bad….palladium. It broke topside on Friday in New York. I think it is the leader in the precious metals at the moment so I think this is likely to prove bullish for gold and silver as well. Silver has been a disappointment over the last month or so but I am starting to like the way it has just been gradually pushed lower. It is almost as though there is an invisible hand there in control but perhaps it isn’t so invisible at all!
And don’t forget what I mentioned last week about what could happen if gold breaks its long term downtrend – we have had a taste of that over the past week or so when the GDXJ changed its weightings. If everyone suddenly decided to get set in gold stocks, it would be dramatic – good for gold stocks and gold itself – and great for traders.
My focus over the next few days is also going to be on our Gold Index (XGD). It looks like it could be forming an almost perfect parallelogram. If that is indeed the case, it is going back to last year’s high. Just give it a bit of time to prove itself.
I mentioned on Friday that the Iron Ore price was right on the downtrend. It broke that downtrend but unfortunately at the moment, I can only look at strength as a bit of a rally. Need to see more work before we can get a better picture of the longer term outcome.
Still thinking about the big picture on coal prices but…… OK I am going to admit to what I am thinking …. that it could be forming a rather large top pattern. Looks like it might have one more rally to complete the pattern but I am starting to get nervous every time I look at it. Let’s see if it can rally here and then have another think about it then.
(20min delay)