Monday, November 23, 2009

Market Monday's

Click for a larger image

The P&F chart really shows how large cap stocks have done. Above is a P&F chart of the OEF -- the ETF that tracks the S&P 100, or the biggest stocks in the S&P. Notice that there is a ton of volume on the up moves. Also note there is only one small down move of any significance over the last 7-8 months. This tells us the big cap stocks are the big movers of this market.

A.) The QQQQs broke a long-term uptrend at the end of September.

B.) Now prices are forming a broadening top pattern, indicating we may be reversing.

On the transports, notice

A.) Prices broke an uptrend at the end of September and

B.) Prices have tried to move through the 72-73 area three times without any success. Also notice we have a descending bottom.

Most importantly, as prices on the larger stocks have made new highs, the Transports have not confirmed.

A.) The IWC (Microcap) formed a double top

B.) Prices fell to the 200 day EMA and then

C.) Formed an upward sloping channel.

So, we have a ton of money still going into the large cap stocks. However, the transports and micro-caps are not following suit. That tells us the rally is getting narrower which is not healthy.

As if on cue, the WSJ weighs in:

Signs of wariness are appearing in financial markets as investors worry that the end of the year could bring challenging trading conditions.

Last week saw a steep drop off in stock-market trading volume and a surge in demand for short-term government debt, indications that investors and financial institutions are growing cautious and retreating from riskier bets.

That defensive behavior is relatively common toward the end of the year. But this year it's happening earlier than usual. An uncommon confluence of events is driving the shift. The biggest catalyst is a reluctance among investors to take on new aggressive bets and avoid a late-year blow-up in their portfolios. Many are sitting on big gains after a 58% surge in the Dow Jones Industrial Average since early March and record returns from some corporate bonds.

"People who have booked some significant gains…are looking to take risk levels down," says Brian Fagen, co-head of Americas liquid market sales at Barclays Capital.