Thursday June 21, 2012
Here is another letter noting the improvement in the Summation Index.
I mentioned the short term over bought nature of the market yesterday. Here the McClellan Oscillator has outperformed what it did in December, but where is the sparkling rally in stocks to match the recovery in this indicator? the summation index is a cumulative look at the Oscillator. Even if the Oscillator goes sideways that will slow the progress of the Summation Index.
OIl is acting badly but is still right at the 200 week moving average of 80.82. Recall that 2008 was occasioned with a top in oil during July at 145 adn then a crash all the way to 35 by December. So far we are down from 110 to 82.5, quite a drop.
Here is an example of why I am uncomfortable this Thursday morning.
Between the bearish and bulllish views I read, I am wondering if the market is setting all up for a disappointment by perhaps failing at that pink downtrend line? It is hard to expect the McClellan Osc shown in the first graph to do much more than it has.
NYSE McClellan Osc versus NYSE in Green
From these same levels last November the NYSE dropped 800 points. Now as in November the NYSE lags the Oscillator.
Here is another reason for caution. The SPX displays a pretty clear five wave descent from the March high. Now the rebound correction
displays the proper A B C pattern
and is right at the 61.8% retracement level of 1363, note blue bars at left.
This chart is signalling a weak US and World economy. We have some profits made. The Dollar may well find support here which would further weaken the oil price.
Perhaps it is best to take some money off the table, lighten positions, and watch. This morning Jesse at the Cafe is long bullion and short stocks.