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Market Rallies Off Lows, but Wait . . . October 6, 2012

Posted by Tom in Thoughts.

Last week was a good week for the markets.  They are starting to fill out a price structure pattern and there are two possibilities.   We have seen a “Buying Climax” (labeled BC) and an Automatic Reaction (labeled AR).  In a general sense, the AR is “stopping action” in a downward correction (or call it a pause).  We now have two ‘lines in the sand’ to measure any further action, whether it be to the Up or Down side.  That’s not to say these price levels will can’t be violated and head in the opposite direction, but ‘How’ they break these levels is important.

We’ve had a move up this week.  That could be labeled as an Up Thrust but since that pattern is NOT complete, we just don’t know right now.  Getting back to the two possibilities, they are, an early sign of Distribution (bearish) or Re-Accumulation (Bullish since it’s just a pause).  IF it is a negative structure, we’ll need to see a breaking of the trend line (note the aggressive dashed line and the conservative solid blue line), a Major Sign of Weakness (that’s down price bar with volume confirming it) and a failed rally (a swing higher that didn’t complete).

For now this looks like a Re-Accumulation structure to my eye, tho that could change as the pattern fills out.  I don’t see any major signs of selling right now.  What does continue to concern me is how ‘skittish’ this market is.  News will easily push it in one direction, then the next.  This is not a sign of a strong, healthy market . . . way to many folks out there trying to make a few bucks and then bail.  The focus is much to short-term for my liking.

I show the top 10 sectors weighted toward recent strength below; FYI.

(table courtsey of www.HighGrowthInvestor.com; used with permission)

Note: RS Strength is Relative Strength of this sector to all others; A/D is Accumulation / Distribution strength both via letter Ranking, Value and Velocity.

I am nearly fully invested in the stronger sectors, tho watchful for danger signs.  The market IS overdue for a correction (down move).    Have a good week and please leave comments by signing in then clicking the comment section at the top of this posting.      ……  Tom  …….


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