Saturday, December 12, 2009

Market Mondays

As I have been pointing out for the last few weeks, the market's technical position is deteriorating. The SPYs have been in a holding pattern for about the last month. The IWMs and IWCs are below highs established earlier this year, indicating a flight from risk. And from an ETF perspective we are seeing more defensive sectors perform well. Last week, two of the top performing ETFs were health care (XLVs) which were up .97% and the utilities (XLUs) which were up 3.85%. The other top performing sector was consumer discretionary which was up 2.09% on the backs of a good retail sales report and hopes for a better than expected Christmas.

Click for a larger image

There are two points with the chart above.

First, notice that volume has been decreasing since the beginning of the rally. That tells us that fewer and fewer people are trading in the market. Part of the reason for this might be that a lot of people allocated capital at the low points in March and are simply holding onto gains. But some of it is also that we're not seeing a huge influx of new capital.

Secondly, notice the curve of the chart. The initial move from the March lows was strong. But notice the angle of the rally has slowly become more and more horizontal. Finally, notice that for the last month and a half prices have been stagnant at the top of the range, unable to move above ~111.

It is possible that some of this is simply the end of the year. Traders have some big gains, from the year, so they have hair triggers when it comes to selling. But it could also mean the market is stalling for now.