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Ch. . .Ch. . . Chaanges?


Have I got you twisted into a pretzel or what!?


A number of the Technical Analysis newsletters and advisory services I follow have turned starkly bearish over the last few days - no great surprise there of course. Balancing the tape action is the tone of the corporate bond market as tracked by the Iron Horse. Brian's thesis is that as long as corporates hold firm, this correction is just that, and as they did at the April lows, equities will eventually restart their upward march.

The difference between the minor dips we have had in late June and late August, and the one we are in the midst of now, is that, whichever way it breaks from here, the move is likely to be large enough that missing it will result in some tangible performance pain.

Given my secular bearish bent, I am going to play devil's advocate here and suggest that the technicals do not yet support a slam dunk conclusion that Boo is back in town. By the same token, some aspects of this decline are different from the prior corrections.

The most bearish view of the Minx is expressed by the S&P500 (SPY). On Balance Volume (OBV) at the April lows remained in a solid uptrend, suggesting continued accumulation. It peaked at the August highs, it bearishly diverged at the September highs, and now is trending solidly down. Both the 50 and 200 DMA are now downward sloping, removing another layer of support. Below 1177 the S&P500 "has issues".

Things are less clear for the QQQQ's. Yes the MA's are downward sloping - and more so than for the SPY's - but the price is still above the 200DMA. OBV also remains in an uptrend. To hold the trend though price action needs to shape up pretty soon.

The most bullish picture is shown by the NYSE Composite. I do not have the OBV data for this chart unfortunately, but this Index is still in a major upward move and Boo should find formidable resistance at the 200DMA / trendline.

Lastly, if the swoon of the last week feels different, more severe than what's stored in our short term memory, the Volatility Index does not quite confirm it - yet, as it hangs by its fingernails to the downtrend of the last 20+ months.

Let's be careful out there!

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Position in SPY, SPX, QQQQ
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