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Market Correction, but is That It ? February 23, 2013

Posted by Tom in Thoughts.
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Greetings.  Last week I talked about the market possibly forming an UpThrust bar, that is in Wyckoff terms a sudden move up right before a sudden drop.  Now many folks would say I was spot on, but not so fast.  This (possible) formation has not been confirmed yet.

A few things bother me.  First there is not much of a “cause” in the background.  The “cause” would be a sideways movement going back awhile.  IF one were to think of the “cause” going allll the way back to the previous high of mid-September, 2012, then that would be a major “cause”.  That could be and would foretell a major drop.  So . . . I’ll wait for confirmation.

Three things are needed for confirmation of a change in trend (distribution in this case).  1)  A broken (significant) Trend Line (preferably with a Close below it).  That has not happened yet.   2)  A failed upward swing (higher) after the UpThrust.  That might be starting on Friday with a move up but we’ll need to see more of a continuation of that move up without exceeding the High of the UpThrust.  Note: watch the volume if that happens, average or increasing volume is Bearish indicating folks are bailing out even as prices rise.   3)  A Major Sign of Weakness (like a failed up bar on higher volume that closes near the Low of the day), would be Bearish as well.

NASDAQ Composite

If we don’t get confirmation one must assume that this formation is just a Re-Accumulation formation and not Distribution.  That would be a minor correction in an overall up ward moving market.  We’ll see.  Right now nothing is that terribly obvious.

The FED news generated the correction so far.  That shows (in my mind) that this market is very nervous about the future and traders are quick to take profits.  With the sequester budget issues hitting us on Friday you’d think that there was plenty to be worried about.  But maybe (just maybe) not.  This market does not see this as an impending problem.  I’m surprised.

The next two pie charts show (I believe) relative strength in the market right now.  I don’t see a rush of the exits just yet.

S&P 1500 Price Strength

The chart above is the price strength of all stocks in the broad S&P 1500 index.  This “strength” is in reference to a price band or envelope.  Green is strong, Red weak, Yellow neutral.

S&P 1500 Accum-Distrib

This chart is also of the S&P 1500 stocks but refers to Accumulation (money flowing in) and Distribution (money flowing out).  The standard Green, Red and Yellow colors apply here as well.

Market Correction . . Is That It?  Yes, that could be it but a small rally up in the next few days on higher volume could be a problem, especially next week with all of the political issues getting traders nervous.  Definitely a time to be extra watchful, perhaps a time to hedge out positions (?) just in case.

Have a good week.       ……….  Tom  ……….

charts courtesy of MetaStock and www.HighGrowthStock.com ; used with permission

 

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