Thursday, November 19, 2009

What's Been Weak In The Stock Market

Here are some charts that clearly illustrate why I am bearish on stocks and which groups I feel have been weak. But before we get to the charts I'd like to say that anything can happen in the market and no matter how well things may line up, the unexpected can and does happen which is why I always have my protective stops in the market. Having said that, lets take a look at some charts!

Above is the NASDAQ with the NASDAQ advance decline line. As you can see there is massive bearish divergence taking place right now. This can't be good for the market.

In the above chart we have the ETF for the Russell 2000 (symbol IWM). Notice the symmetry in this market. Rally A to B and rally C to D were both approximately 5 dollars and lasted for 11 trading days. This ETF also held the top of its channel and is now moving lower on an increase in volume. Earlier in the week when the S&P broke to a new swing high, the Russell 2000 did not make a new high. This is bearish divergence and indicates weakens for the Russell 2000.

The transportation index has been making lower highs and the stochastics have just crossed confirming a sell signal.

The oils stocks (OIH) did not break high with the S&P earlier in the week which I interpret as bearish for this group. Notice the increase in volume today on a move down. There is also a picture perfect head and shoulders top that has developed.

The biotechs are also looking weak. I'll let the above chart speak for itself.

Homebuilders have the same bearish setup.

In the above chart you can see how the financial stocks have not made a new high with the S&P. I actually have some of these stocks short but yesterday's price action caused me to lighten up on my position. The market was basically flat yesterday but the banks were the strongest stocks on the board so I cut my position in half only to see them fall right back down again today. Hey, nobody said trading is easy.

I could go on and on posting charts that are diverging from the S&P such as the XAL (airlines), $DDX (Disk drive index), $SOX (semis)..etc but I think you get the idea. Remember anything can happen in the market especially with a falling dollar so remember to use protective stops. Anything can and will happen!


getyourselfconnected said...

The US-China visit has ended, so expect dollar weakness and stock strength. No fundamentals, it is what it is.

Mr. Monopoly said...

If the market tanks, the dollar should rally. UUP is starting to look like it may want to go up. There are bullish divergences on MACD, Stochastics, and RSI, and Stochastics is giving a buy signal.

Kevin said...

Hi Mr. Monopoly,

I couldn't agree with you more.

Elaine said...

Is there an etf or two that would be good to buy puts on? Also, how long would you expect this dollar rally to last?

Anonymous said...

You can also look at a longterm chart of the $vix as we are into a major area of support that could launch for movement. Most likely it'll remain a sector/stock pickers market for years or I should say a traders market. They tried their best to convince the public its buy and hold again but they can only take the dollar down so far until another bubble will burst.


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