The Turn has Begun

The recent action in the $USD and $TNX (there are several $USD & Bond charts on that same list) paint a good picture of what the market is expecting and preparing for around the FOMC meet on Jan 26-27. With the $USD being fairly valued around 76-77 and the absence of the carry trade taking pressure off too, it has become a flight to safety for at least the short term again. Bonds have been preparing for this for a the last few months too, but seem setup for another decent bounce off support around the FOMC meet. In the past, stocks rallied as you would expect with bonds, but this time it might be different especially given the valuations and recent deterioration in the technical view.

(live link to the chart above)

Sector Analysis - 2003/Present Comparison

It is interesting to note that in early 2004, $TRAN underperformance increased significantly well ahead of the broader market and long before $WLSH corrected back below its 200 day sma.

The only real laggard here in this chart is the $XBD, which may catch up real soon around this earnings season.

Possible Weakness Ahead for the $XBD

Here is a link to a candleglance of stocks in the $XBD (except ETFC)

Link to the chart above on my Public List at StockCharts

If 2004 is any guide, it was about this same time of that rally when the Broker Dealers started to underperform greatly. All the recent M&A since we came off the lows is a good indication that the there was real value out there and many were positioning for future economic recovery, but that activity is likely to slow down now until next year. Financials in general have been down due to recent legislation proposals that are not favorable to them, so, IF, those are resolved favorably, then MAYBE that sector will rally again and catch up with the broader market.

(this has nothing to do with the $XBD, but had to make note of it)

As far as the $SPX goes, the lows from last week will be watched VERY close next week. If they are not taken out, then there is a good chance the rally holds and maybe makes a slightly higher high next week.

The $VIX 30 minute chart made some interesting divergences last week as the market was hitting the top and bottom end of its range. Even though the $VIX made higher lows as the $SPX was testing the 1150 resistance on Thursday (a bearish sign), it did make lower highs as the $SPX was testing the low end around 1130 on Friday (a bullish sign). I have to say this leaves room for upside especially if the $VIX makes a lower low than it did on last Thursday as $SPX tries to break 1150 again. If the $VIX does that then the setup will be obvious for a breakout to 1164 soon especially if $VIX then makes a lower higher again as $SPX pulls back from 1150 again! Caution is evident in the charts and since many floor traders look at Gann Theory, it is good reason to expect this kind of caution to be appearing in these indicators.

A Stock Pickers Market

This is the case now more than at anytime since March. Also I will be doing some more sector vs market analysis comparing the present with the 2003-2004 bull market. Some Gann theorists are expecting 1150 to be the high of the year, while others still expect more upside. I am in the camp that it is not cut and dried and impossible at this point to know for sure what will unfold for the rest of 2010. But I also think that by March the outlook will be much clearer and thus, my focus will be on measuring the strength of the market technically and fundamentally.

ACAS vs DJUSFN

Live link to chart above

I am sure you have seen a chart of the Dow Jones Industrial Average since 1900 thinking that the market is in a similar time as 1929, and that the final lows are not in yet for the major indices. (In case you haven't seen any long term historical charts of the major indices, try going to StocksCharts * com website and look for the link "Historical Charts" on the right side of the webpage) While that is possible, it would seem more likely that the next few years or more will be similar to the 1066-1082 time frame due to lack of sufficient natural resources of all sorts, and limited capacity to lend by financial institutions. We have already seen a major downsizing of the major corporations of the world in preparation for an extended period of slow growth. So, until they start to make preparations to expand back to the levels they were at in 2007, then I think it is reasonable to expect an extended range bound market for the foreseeable future.

Also, many will be pointing out a massive H&S top forming in the $INDU when it returns back to 11,000 in 2011 while at the same time others will be calling for a rebound back to 14,000. So where will all the sideline money find a home for the short term? I expect more will flow into the large caps again, mainly the Dow and the larger ones in the S&P, the S&P 100.

Next 2 FOMC meets are the most important of them all

It has been a while since i posted here, but still updating charts on the public list at StockCharts.com
I have been focusing on individual stocks more than the indices, since the markets are moving at a snail's pace these days.

Live link to chart above

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