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Very Interesting. September 17, 2011

Posted by Tom in Thoughts.

Do I mean the fact that the equites markets were Up 5 days in a row?  No.

What I find interesting is what happened in the last half hour of trading on Friday.  A tremendous volume spike, circled in green on the chart below.  What the heck happened?  Well, since this magnitude is not seen on the SPY (ETF that tracks the S&P 500 Index price) it appears to be the unwinding of expiring derivatives (Friday was the expiration of options & futures contracts; it’s “make or take delivery” time).  My gut feel is that next week will be an important indicator of the market direction going forward. 

The logic goes like this:  Note the decreasing volume last week as prices move steadily higher (lower blue volume line).  Then the volume spike Friday on the smallest daily range of the week.  Then note that we’re approaching the last pivot high of 1230.  And lastly, a (possible) symmetrical triangle price pattern.  If there was ever a technical reason for this market to make a significant move either Up or Down, this is it (IMHO). 

I also note weakness in the background (a Wyckoffian term) and a turbulent news environment (Europe and the general economy).  I am not comfortable taking any big positions out there right now, but that could change very quickly.

How’s the breath of this market?  Actually, it’s doing better, tho still not indicating that we’re healthy just yet.  The chart below shows the percent of stocks in the S&P 1500 index that are in various stages of Accumulation and Distribution.  Roughly 4% in heavy Accumulation and under 40% in any stage of accum. is not exactly the “all clear” signal that I’d like to see.

chart courtesy of HighGrowthStock.com; used with permission, copyright 2010-11.                     Click on charts to enlarge.

What’s doing well?  I see Information Technology, Semiconductors, Healthcare, multi-line Retail, Textiles and Specialty Retail showing strength.  And for all of the “Gold Bugs” out there: it is pausing, along with the bad news out of Europe; not in a trend right now.

Be careful, be watchful and have a good week.


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