I think we found out what would stop this rally today: Bernanke opened his mouth. He gave whatever report he is supposed to give to Congress today, and as soon as he started speaking, the market, which had been off to a fast start, collapsed. One signal we got today was a rise to 1378, where the market stoipped and refused to go higher. Apparently we have found resistance. We also found sellers today, and the volume was quite high. Chalk up some distribution.
It's funny how the market becomes fixated on round numbers. The Nasdaq went up to 3000, then stopped cold. That is just below where I have the target projection, but that could be interpreted in about a million ways, so I'm not convinced this isn't the top. The market has been over bought for quite some time, and it is overdue for a decent drop.
The other big signal we are getting is the weakness of the Russell 2000. For the third time since this topped, it is flashing the Elder impulse sell signal, and I would not bet that this is a false alarm. A correction, if not imminent, is coming.
| Ticker | Relative Strength Index (14) |
| XLK | 77.58 |
| XLY | 70.93 |
| XLP | 67.21 |
| XLF | 62.16 |
| XLE | 60.23 |
| XLI | 60.16 |
| XLV | 56.74 |
| XLB | 51.83 |
| XLU | 44.25 |
Here are the sectors ranked by RSI. What is surprising is that there is very little change from last week.
XLK, despite being massively overbought and having a rough day today, is still in first place, is still overbought, and very likely to be leading next week. Even if we go into a correction, this one really has to drop to give the other sectors any chance of taking the lead.
XLU is still in last place. I thought we would be seeing some rotation into here, but I don;t see it. It is getting relatively weaker despite being the weakest sector. On the positive side, this doesn't normally drop very fast when it drops.
We have been getting warnings for a couple of weeks now, which have been, up to now, safe to ignore. This one, however, is much more serious, as we got a big reversal off a very positive open. Justice, however, may have been served today: Bernanke started this rally by opening his mouth, and he may have just ended it the same way.
I will have the new highs update shortly.
