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Sunday, November 15, 2009

Weekend Reflections and Review, Featuring Your Requests



So many unmistakable market messages all the way up; so much uneasiness as we climb. The proverbial "wall of worry," if you will. It would seem that an overwhelming majority of traders in the blogosphere are now absolutely convinced that a major correction is not far off, and many believe that the correction will be in the form of a catastrophic crash. Even Carl Swenlin of Decision Point, who in my opinion is one of the best technicians around today, seems to be grasping at straws somewhat as he redraws patterns to accommodate his expectations of a more extended pullback waiting in the wings. And it may well be. Volume has been drying up as price drifts higher, internals have been exceedingly bearish, and many divergences have been warning of a pending downturn for some time now. Nevertheless, price has continued to levitate, and corrections continue to be mild.

Is a more significant correction mandatory or inevitable, or could we continue to "melt up" with shallow pull-backs along the way? No one knows, but it should at least be considered that perhaps the very fact that bearish patterns have either repeatedly failed to have bearish resolutions or else have needed to be continually redrawn to remain potentially relevant is significant in and of itself. Is the market not signalling its intended direction when major trendlines are broken, only to be quickly reclaimed? Or when too many head and shoulders patterns to count fail to break down, either bouncing strongly off their necklines or vaulting northward out of the top of potential right shoulders? Food for thought, and a look at the 2003 rally off bear market lows that is shown below has some interesting parallels to contemplate along these lines.

In the meantime, we head into an Opex week parked just off rally highs. Many leading stocks ran up into the close on Friday, and we have seen some rotation into large caps in recent trading as the small caps that had outperformed for months take a well-deserved breather. The market moved higher again last week, but the bulk of the gains took place on Monday, with the remainder of the week spent more or less in a holding pattern with stocks consolidating gains while still suspended near 2009 highs.

Let's take a look at the 2003 rally off bear market lows just for fun. There are some interesting comparisons to contemplate.



And as long as we're flashing back to the prior recovery rally from bear market lows, a look at the Nasdaq from that time frame may also be of interest.



On Friday I asked for chart requests for the weekend post and said that I would select a few to include. Rosabarba submitted the Russell 2000 for consideration, which I thought was very timely and a chart I might have featured anyway, so we'll start with $RUT. It's at an interesting juncture as it has weakened considerably relative to the major indices since mid-October, correcting down to support after putting in a short-term double top at rally highs. It has had a decent rebound over the past couple of weeks, but so far the snapback rally stalled at resistance. It could be forming a complex head and shoulders pattern, or it could be getting ready to push back up after a decent correction in which important support held firm. The Russell had run up substantially more than other leading indices before its correction began, and that needs to be considered when drawing conclusions in regard to its recent weakness. From the March low to the rally high, $RUT gained roughly 82%, $NDX approximately 76%, $SPX around 66%, and the Dow bringing up the rear at 61%. Note that the patterns shown below in the $RUT chart do not line up as nicely in the chart of IWM. I would give more weight to the $RUT chart.



Sentiment Al wanted to see a chart of ATVI, and I've marked up two charts that show both a long-term and more recent view of the stock. This is a messy chart, for what it's worth-- it is more or less in no-man's land right here, but I've highlighted some key levels to monitor going forward. First up is a weekly chart.





Trader Tamas put in a request for a UUP chart, and Keith and others wanted to see the $USD again, so next up are updated charts of those. As you will notice, UUP is not following the dollar very reliably right now, as the dollar bullish ETF reportedly "ran out of shares" last week and has apparently filed an application with the SEC to issue 100 million new shares. I'd watch $USD or $DXY if you're trying to track the dollar until the UUP situation stabilizes. Little has changed in the $USD chart since it was shown on Friday-- a slight gap down and close near the low of the session, but still off November lows. For now, the chart remains bearish as it works its way down the channel and continues to break down from the massive double top.





That's it for now. If I didn't get to your chart request, I may be able to address it in the comments section on Monday. And if not, maybe we'll do this again before too long and I'll try to get you next time. Trade well.    -- Brinkley
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