Why You Should Sell into
Any Rally
By Jeff Clark
January 20, 2009
Well, so much for the idea of a strong intermediate-term rally.
Several weeks ago, I suggested stocks were ready to bounce. The market had just completed a vicious three-month decline, and many technical indicators were pointing to a rally. If ever there was a stage set for a bear-market bounce, then it was set in November.
But I've seen flat basketballs bounce higher than this.
Yes, the major market averages did manage to rally 20% or so off of their November lows. But given the extent of the decline last summer and fall, a 20% gain is hardly a pop. And that's probably all we're going to get.
Sadly, after last week's action, it looks like the rally has come to an end. Take a look at one of my favorite intermediate-term indicators...
The New York Stock Exchange Summation Index (NYSI) is an indication of long-range market breadth. It's a momentum indicator. And when plotted against Moving Average Convergence Divergence (MACD) crossovers (on the bottom), it can generate highly accurate intermediate-term buy and sell signals.
Let me explain...
The black line on the MACD chart above is the 12-day, or "fast," exponential moving average (EMA). The red line is the 26-day, or "slow," EMA. Whenever the 12-day EMA crosses over or under the 26-day EMA, it creates buy and sell signals. And when those signals occur with an oversold or overbought condition on the NYSE Summation Index, they set up high-probability trading situations.
As you can see, in November, the NYSI was quite oversold and the fast EMA crossed over the slow EMA. Stocks popped 20% higher. It was an easy trade to make, and I suggested as much back in November.
On Friday, however, the fast EMA crossed back down below the slow EMA and generated a sell signal. Worse yet, this signal is occurring from a highly overbought area on the NYSI. So the stock market has the potential for a dramatic decline from here – one that takes out last November's lows.
For the short term – meaning the next week or two – the market could rally a bit just to eliminate the oversold condition I mentioned last Thursday. I suggest you take the opportunity to lighten up on your long positions.
We're unlikely to see the S&P 500 pop back above the 920 level and set another "higher high" on this rally from the November lows. Instead, it looks like in the intermediate term, the market has once again turned bearish.
Best regards and good trading,
Jeff Clark
|
Goldman Sachs Predicts "Swift, Violent Rebound" in Oil
Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a "swift and violent rebound" in energy prices in the second half of the year.
Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a "new bull market" in oil, Currie said. Read on...
This Bank May Lose $41 Billion
Royal Bank of Scotland Group PLC said Monday that tough market conditions in the fourth quarter and mounting impairment charges could push it to a 2008 full-year loss of as much as £28 billion ($41.29 billion), the U.K.'s biggest ever corporate loss.
RBS finances have been hobbled since it bought ABN Amro assets in a consortium with Belgian-Dutch financial services group Fortis NV and Spain's Banco Santander SA. It was Europe's biggest banking takeover and was completed just ahead of the credit crisis. The value of the assets RBS bought has plummeted since. WSJ ($) Read on... |
|
|
| • |
Destruction in large-cap banks... Bank of America, Barclays, Wells Fargo, HSBC, Royal Bank of Scotland, and SunTrust end last week at new lows. |
| • |
Credit-card behemoth American Express hits 13-year low... down 74% from July 2007 high. |
| • |
Crude oil drops below $35 a barrel... hits a five-year low.
|
| • |
Earnings today... CSX, IBM, Johnson & Johnson, Suncor. |
|
|
Last |
Change |
52-Wk |
| S&P 500 |
850.12 |
+0.76% |
-36.24% |
| Oil (USO) |
29.86 |
-1.06% |
-57.96% |
| Gold (GLD) |
82.71 |
+2.89% |
-4.38% |
| Silver (SLV) |
11.11 |
+5.91% |
-29.31% |
| U.S. Dollar |
85.91 |
+2.31% |
+11.55% |
| Euro |
1.30 |
-1.04% |
-10.22% |
| VIX |
46.11 |
-9.59% |
+62.02% |
| HUI |
278.41 |
+5.55% |
-36.69% |
| 10-Year Yield |
2.30% |
0.11 |
-0.84 |
|
| Company |
Sym |
Industry |
Amer Ital Pasta |
AIPC |
pasta |
ITT Educational |
ESI |
secondary edu |
Apollo Group |
APOL |
secondary edu |
Life Technologies |
LIFE |
biotech |
Grand Canyon Edu |
LOPE |
secondary edu |
|
| Company |
Sym |
Industry |
Thor Industries |
THO |
RVs |
SunTrust |
STI |
bank |
Elizabeth Arden |
RDEN |
cosmetics |
Bank of America |
BAC |
bank |
American Express |
AXP |
credit cards |
Regions Financial |
RF |
bank |
HSBC |
HBC |
bank |
Charles Schwab |
SCHW |
brokerage |
Royal Bank Scot |
RBS |
bank |
US Natural Gas |
UNG |
natural gas |
Barclays |
BCS |
bank |
Wells Fargo |
WFC |
bank |
M&T Bank |
MTB |
bank |
|
|
