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Do We Have The “All Clear” Sign ? October 15, 2011

Posted by Tom in Thoughts.
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Just when I thought only a hand full of folks were reading this blog, and that my time could be spent more productively . . . I received a number of + comments, both via e-mail and the blog.  Thanks !

If you only listen to the media news you’d get the feeling that the market was roaring ahead . . surely we must be at an all time high.  No, we’re not.  True that last week was very positive and the market did roar, but put into context, we’re right back where we were in August.

The chart above shows that we’re still riding that range of a volatile up then down market.  What has driven the latest move up is the “plan for a plan” to recapitalize European banks.  By late October (if I remember correctly, Oct. 26) there should be more details.  But keep in mind that all EU nations must approve the plan, not the majority.  The read is: more volatility could be coming in the weeks, if not months ahead.  This won’t be easy.

Next week should be important in that if the market continues to rally, we may have the confirmation that everyone is looking for.  I say confirmation because Volume (lower bars on the chart) is NOT confirming the rise in prices.  So what !  So the bigger players are not jumping on board yet.  Volume is needed for prices to continue higher, it can’t just go up on air.  A possible scenario is that we will get a correction lower next week.  The depth of the correction and what volume shows will be important.  Will the “late sellers” use this rally to sell into (volume rising as prices fall or stagnant) or will it be a shallow, base building correction (ultra light volume, little selling) ?

While my “numbers only” market model turned very bullish last Wednesday, I tend to want to see what happens at this level of market resistance; roughly 1220 on the S&P 500 index.  Then, as confidence improves, I will scale into positions that are showing strength better than the general market.  Right now those sectors are technology, specifically Internet, Semiconductors and general Technology.  International (especial European sectors) have recovered nicely (tho these could get slammed with any bad news).  Industrials and Consumer Services did well last week also.

How much improvement did we see last week?  The pie chart below shows that roughly half of the stocks in the broad S&P 1500 Index are in some form of Accumulation.  Light green is early / light accumulation and dark green is heavy.  Obviously we’d like to see more dark green.  This chart is something to keep an eye on as a possible correction unfolds.

                             chart courtesy of  highgrowthinvestor.com; used with permission, copyright 2010-11.

Have a good week and be extra watchful.      ………..  Tom  …………..        P.S. I’ll try and get this RSS link fixed.

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