Monday, October 12, 2009

Market Observations - Resistance and Black Candles

The Russell 2000 is an interesting index. It is comprised of a high concentration of energy and financial components. It is also represent speculative small cap companies, so you can gauge the market's risk appetite from it. Well, as you can see below, the Russell has to break its high. This is a difficult task given the strong resistance and overbought nature of this market. Additionally, the Russell has been lagging which adds to the difficulty but also demonstrates a tiring market overall. The Gap Up open with a close below the Open created a Black reversal candle. These are highly reliable signals especially when they occur at trend-line resistance with divergences. Something to keep an eye on.

If the market is going to reverse down or break resistance it has to happen imminently. There is no spare time. It is my impression that people are so tired of calling for a correction that most are looking up. While I recognize this possibility is not trivial...the downside case seem much better to me and upside seems quite limited.

US 30 year Treasuries - not a pretty chart...and not a good omen for the market. Clearly, Corporate Bonds and Treasuries have disconnected...The structure for the Corporate Bonds is very clear and it looks like the ABC pattern is complete. Look out below.

McClellan Oscillator had two small consolidation moves...Friday and today...this portends a large move of some sort is likely tomorrow. Either way you want to be on the right side of what ever that move turns out to be...and it seems likely to be down to me.
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