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Point & Go Figure: S&P 500, Russell 2000, Oil Service HOLDRs


But there's always a bull market somewhere... right?


Market Overview:

The 50-day indicators for the NYSE and the S&P 500 are back in Xs (short-term positive) from relatively deep oversold conditions. How deep? The S&P 500 50-day indicator reached 20% on June 13, the lowest level since last October... just prior to the market low at 1168. The 50-day indicator for the Nasdaq remains in Os for now, though it too is at last October's level.

The short-term High-Low Indexes for the NYSE and Nasdaq are in Os (negative) and have moved to relatively oversold conditions as well. The conditions are right for relief, but such relief will occur in a broader negative long-term context (weekly and monthly DeMark sell signals) that simply was not present last October.

Below is the positive trend chart for the SPX, which we first mentioned on June 7. This is a chart Dorsey Wright uses to track the percent of S&P 500 stocks which are in a positive trend as defined by the PnF methodology.

S&P 500 Positive Trend Chart
(Chart courtesy Dorsey Wright)

This chart adds further evidence that a significant structural shift is taking place here. Positive context helped bail out the market at prior turning points (October 2005, April 2005, August 2004). Now, however, that context has changed to negative.

S&P 500
(Chart courtesy

The SPX rallied to resistance, but has so far made a lower high. A reversal down would occur at 1240.

Russell 2000

(Chart courtesy

The Russell 2000 has a chart very similar to the SPX. In fact, the only difference is that it has already reversed down...

Oil Service HOLDRs
(Chart courtesy

The risk in the OIH (really, all energy since virtually all charts look the same there) is that the trendline break (at 142) was structural and not cyclical. There are winners AND losers during bull and bear markets... except when the bear markets are the consequence of deflation. Then, there are only losers. I believe this is especially true in our case given the hyperinflation in asset prices we have experienced. Of course, I could be wrong about that. A move below 132 would strongly suggest I am not, however.

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