October 12, 2018
What the Bell Weather is Saying
While the small-cap leadership is taking a hit the key industry to the overall health of the financial markets is not getting too much attention.
The first thing you notice when looking at a long-term chart is the recovery from the ’09 low has not exceeded its historic highs in 2007. Such non-conformation with the major indices from the industry that is the engine room is a bearish sign, which is just the start of a running list of failures and sells signals.
The lower high it was able to achieve in January failed to hold in long-term (L-T) overhead resistance and again in September. On an I-T basis the XLF failed three times to break out above its resistance.
In the above chart you can also see the Elliott Wave count supports the bearish outlook with a leading digital triangle for the first leg down; followed by a 62% retracement for wave 2, a typical relationship. The wave two ended in our fixed resistance zone on 9/20, which is not accidental.
Momentum on an S-T basis measured by RSI has reached an extreme bearish reading that in every case this decade has to lead to a more decline.
A look at the monthly chart has our Bollinger Band oscillator breaking down, a technical event that leads to more decline.
Volatility Model (Technical Event Matrix)
The rally into the September peak was on panic buying as measured by out Technical Event Model. Emotional behavior in the market always has a high price to pay.
The volatility background supports continued monthly range expansion (TEM Rule #4) which projects a price low at or below 25.50, another 4% from here. The model sees the current trend as persistent and only on a short-term basis is it in a panic mode. It is only this latter bit that can suggest a near-term rally.
This sector is a bell weather for the long-term direction of stocks. Keep in mind that our call for another 4% decline from here is modest. If the sell signals pointed to above take prices below that 25 price level, the inference fits with our longer term bearish
Long Volatility ETFs
Here is a bear ETF on this sector. Prices are moving out of a weakish wedge formation. If the sector over the long term get back to its 2016 pre-Trump levels it is looking at 55 +/-
Great and Many Thanks,
Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,
www.ContraryThinker.com coming soon
Jack F. Cahn, CMT Thinking Man’s Trader 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. www.ThinkingMansTrader.com, 800-618-3820
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