Mixed Messages But Risk is High

  • Posted by
  • on November 18th, 2011

Like a broken record, I’m taking note of the pros and cons of the indices right now and finding plenty of debate.  I always look for as much contradictory evidence as I can find, but it’s getting so cloudy that it all merges into one big mess.  We’re so tightly wound that not even the 50 day simple MA(white) and exponential MA(red) can agree; we’re right in between them!

Some negatives first:

1) Intermediate-term upside momentum completely gone- using a Weekly MACD Histogram in the spirit of Dr. Elder OR my own trend measure, the uptrend from early October ended with this week’s poor outcome

2) Breadth unable to build strength against index weakness- I mentioned breaking <60% of stocks above 10 wk MA as a concern; what does that make 59%?

3) Sentiment may be full of chickens but it’s not full of bears- note the NAAIM weekly survey of active managers trickling along with this bounce

On the positive side:

1) Still a range until it’s not- since rocketing up to 122.60 on $SPY on October, we’ve spent every week since then unable to shake free of it

2) The October low still looks durable in hindsight- positive divergences in both momentum and breadth set a floor underneath

3) Seasonality- but who’s not already aware of the calendar?

Thursday’s break of the recent triangle has the potential to launch us into a move towards the fall lows, but I’m not sold yet.  The obviousness of a break doesn’t invalidate it, but in a world where 90% of us are staring at a daily chart(or across the pond for guidance) seems like a world in which the path to get there will be a surprise.

I place great emphasis on the lack of volume taking place; not that it indicates a bullish or bearish phase ahead but that it indicates a comfort with the present sideways phase.  I’m still not ready to bet the outcome in size, but I feel comfortable that the outcome will be a doozy when it finally begins to reveal itself.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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