Has the Market Rally Lost Its Steam?
By David Grandey
All About Trends
June 8, 2009
When I look at the markets, I can’t help but be reminded of the old Wendy’s commercial — where’s the beef?
By that, I mean where are the good stocks that you can safely buy right now? Just look at some of the names below — from a technical perspective, you can’t possibly tell me there are any low risk entry points with any of these right here. That is unless you want to chase them.
The beef on AAPL is looking pretty slim right now and here’s why:
- Five “Waves” Up (technicians would say that a downward correction is imminent).
- Relative Strength Index (a comparison of a stock’s up days to its down days) is in overbought territory.
- Full Stochastics (a measure of a stock’s momentum) in nose bleed territory.
Now take a look at BIDU, another index heavy lifter.
Look familiar? With AAPL, BIDU, and many other stocks that look just like them, we want to watch for them to come down to the 50-day average — the stock’s average price over the trailing 50 days — then we’ll talk.
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Don’t get me wrong — I’m are all for the markets going higher, however most of the stocks are very extended and are not offering opportunities to buy them at low risk entry points at this time. Sure, the market indexes continue to move higher, but unless you are willing to chase stocks or day trade you won’t be looking at a lot of up side gain potential. Most of what we’re seeing out there is like what we’ve seen above — stocks that have stalled.
Even looking deeper into the technicals and internals of the markets, it seems that the beef really isn’t there…at least the kind that supports higher moves from here.
So let’s take a look at some of those internals and technicals. First up is the Dow Industrials from a big picture sense:
With the OTC Composite you can see a few more items of concern if the market is going to continue to make forward progress. First off, for all intents and purposes, we’ve basically hit the 38.2% Fibonacci Retracement level as shown. And during the month of May while this index was consolidating its gains by going sideways and allowing the RSI and Full Stohcasics to reset from overbought to oversold here we are again right back up into those overbought levels again.
Since this bear market started the RSI hasn’t gone above the 70 level. And every time it got near 70 it formed a top — that’s a pretty strong indicator that the market is losing its momentum.
Also not shown is volume — where is it? While Friday’s was higher than we’ve seen for a while, that’s nothing special given that markets actually distribute while they are going up. Think about it… If you are long one million shares of ABC and want out, when is the best time to sell those peanuts. When the circus is in town and you have a ready, willing and able crowd right?
Drilling down to the shorter term frequency charts there are a few more negatives showing up in the form of Negative Divergence, Stohcastics Overbought and some Elliott Wave issues to contend with from here also. These are all negatives for future forward progress from here.
Here too, nothing but negatives for further upside progress. In other words all the signs are there, but until it breaks the blue uptrend line its all still intact. For next week keep an eye on those blue lines!
Right now, the markets are in the zone to turn from up to down, so be aware of where the market’s pointing. At the Penny Sleuth we’ll continue to watch the technicals for you every week.
Sincerely,
David Grandey
All About Trends
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