In your update today, I
want to make you aware of a risk level situation that is coinciding
with this really great up
move that is occurring.
I will
show 2 charts that Dow Theorists would especially appreciate.
First, is a chart of
the Dow Transportation Index below. If you have been watching
it, yesterday it made an
"all time high"
for the index. While this is exciting, there are two note worthy high risk
conditions.
1. The
Transports normally exceed a 2 sigma Bollinger Band and then pull
back. The greater they exceed the
upper red band below, the
greater and faster is the pullback when it occurs.
This one is out of the
band
at a very extreme level.
2. If you look at
the price, it hasn't just gone up. It has gone straight up in
a parabolic rise. Rises like this
are of short
term and cannot be maintained for very long. When they
reverse, they tend to come down just
as hard and fast.
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The Dow Jones Industrial Average
Chart is below. This is not a confirming condition of the
Transport's rise.
If you note the chart below, the
Dow has done very poorly in the recent weeks, and it remains below
the two
resistance levels that I marked with blue
arrows.
While the NASDAQ and Russell 2000
are being strong and aggressive, the DOW and the S&P are
not.
The S&P 500 is still below its July and August
highs. The S&P is important, because many Institutional
investors
regard it as a the best all around gage of the
economy's strength ... and they use it as a barometer for the
economy.
Much of the recent strong up
activity has been generated because of short covering which drives
prices up
as investor have to "buy back" in order to get out of
their short positions. The "shorts" should be pretty
much
washed out of the market right now. So, the rest of
this move is up to Institutions and individual investors.
If
Institutions go into distribution, then the current up move would
come to and end. The question right now
is whether or not
they will be selling into this rally or not. If they don't we
could see it last weeks longer.
If they do, it could end in a
matter of days.
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