Stock rally continues

qqqq0806.pngStock indexes managed to continue the rally that started on Tuesday. Today the Nasdaq was the clear leader, with the S&P trading on both sides of unchanged but finishing with a small gain. Volume declined. The chart of the QQQQ etf shows momentum up and that moving average lines (blue lines over prices) just turning up for the first time since the current downtrend started in early June. The high of the day on the Nasdaq almost touched the 50% correction level (the thick dark-red line). There is also a small gap down at this area near the end of June. That is probably a little too late to read much into gap fillage, and is probably more of a coincidence that a gap occurred right at that point. But that 50% level is still important to watch for a failure with a test back down. It seems rare to see back to back days with the markets moving in the same direction. One gets skeptical of any continuation when one gets conditioned to overlapping back and forth ranges for so long.
oil0806.pngThe chart to the right is the USO crude oil etf. I sometimes show this instead of the oil futures, as the etf eliminates monthly rollover and shows the same session times as the stock indexes. I’ve been expecting this market to break down for some time, and it finally has. The divergence (green lines) signalled the top in this instance. I pointed this out at the time but wanted to wait for the market to break down and then sell rallies if the trend moving averages turned down, which they have. Divergences look great in hindsight, but can be very misleading and expensive to trade in real time. As I’ve said before, the eye can look at a chart and pick out all the past successful divergences, but somehow the eye glosses over and ignores the high number of failed divergences. The breakdown of prices below the pivot where the red line is drawn was confirmation of the downtrend, along with the down crossing of the moving averages. The first pullback up was shallow, only getting to the faster moving average, but it did manage to pull the momentum indicator in the lower sub-graph back into the overbought area. Sentiment in the crude market is starting to turn negative with more and more analysts saying the bubble has popped. I think they are right, but there could be some nasty short term bounces, especially if sentiment gets too one sided too quickly. I don’t think they’ll make this downtrend smooth and easy to trade.
It’s summer and I’m a little slow in catching up on reading the news. I just came across an interesting op-ed piece in the Washington Times on Obama by actor Jon Voight. It is dated July 28th, so it’s now old news. It is always interesting to me when someone from Hollywood speaks their own thoughts and doesn’t follow the mandatory leftist mindset of almost all those who work in that industry. Only a handful of people in Hollywood can survive in their career after such dissension. There is another article in the same paper on August 4th by Andrew Breitbart discussing the fallout of the Hollywood reverse McCarthyism. Both articles are worth reading. The links are provided. Just click on their names.

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