Comment: A big reversal day on heavy volume = short term top (probably – wait for confirmation). Volume today was 150% of the 10-Day Average. That’s a big step up from the >1b shares traded we’ve been seeing. Today was significant. So – what’s the good news? The two weakest sectors today were both defensives, Health -1.8% and Telecoms -1.4%. That’s not what you expect on a big reversal day. There should be evidence of switching out of risk assets into defensives. That’s not there today. Advance/Decline Ratio was 2.4/1. Again – that’s not what you expect when the major indices eke out a bare positive day. I mentioned yesterday, however, that the RSI on the Cumulative Advance/Decline Line had reached over 90 – rarely does it do that without a pull-back soon after. To add to the overbought theme, the 18-Day Average of the Advance/Decline Ratio is at its highest level since I started keeping records 2 1/2 years ago. That’s an extreme reading. It all adds up to a pull-back but the defensives reading suggests it may not be severe.
INDICATORS: RSI.9: 67.7. Getting close to the 70 level (overbought) and looks likely to set up a negative divergence. MACD (zero-lag) Histogram. Marginally above Zero. Neutral. Negative divergence probably setting up. MACD (zero-lag). Above Zero. Positive. Stochastic: 84.9. Overbought. Take-profits signal if it falls below 80. Doji gravestone candle stick above the short term Bollinger Bands – almost certainly a short term sell signal. Needs confirmation CCI.14: +253.3. Above +200 is an extreme overbought reading. Above +300 is an almost certain reversal signal. We’re lying between extreme and extremer. :) Doesn’t look good.
The XJO closed at 4353.3. Horizontal Support at 4300 Next lines of support: 4200, 4160, 4040.
The odds favour a pull back. (We’re still waiting on next day confirmation.) How far? For how long? Don’t know. If this is a bull market. Not far – and not for too long. The action in the defensives supports that view. But - you never know - it could get nasty.
Update on BHP:
BHP still hasn’t got above that long term down trend line from April, 2011. It has to get over that. Indicators are generally setting up negative divergences, and the CCI is well overbought. Volume was heavy today - heaviest since late September. A pull-back seems highly likely.
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