Monday, July 6, 2009

Market Mondays

Welcome back from a long weekend. I wish I had better news. However, the market looks poised for a correction. Consider the following:

The MACD has been falling as the SPYs made new highs. That is never a good technical development. And, notice the SPYs are in a clear head and shoulders trading pattern -- and that we are in the middle of the right shoulder.

Also note that as the market made new highs the on balance volume didn't increase at all. That tells is that the new highs were made on less than strong volume.

Consider these charts of the other large averages:

On both charts the MACD was declining as the markets were making new highs. These types of technical divergences tell us the probability of a lower market is pretty high.

According to Stockcharts performance analysis, the two best performing market sectors over the last half year were the XLBs and XLKs. Consider these charts:

Like all the major averages, the XLBs have seen a declining MACD. In addition, we also have a declining RSI.

And the XLKs also have (you guessed it) a declining MACD.

There are a lot of big technical divergenses in the market right now -- not only in the averages but in the biggest moving sectors of the year. That tells us the probability of trouble ahead it pretty high.