Market Comments 6/9/2010

I continually shake my head at the extraordinary beauty in the market. It's ability to confirm and confound, to portray "fearful"symmetry, to offer hope, to tantalise. Homer would have written great epics out of a hero's journey through the terrain, the world that the market presents.

Enough of that. What brought on that bit of poetic tripe? You may well ask.

• First, today's XAO finished at 4615.7. August's closing high was 4615.6. Close enough?
• The XAO finished marginally above the 150-Day SMA.
• The 50% retracement of the April/May decline is 4620 (give or take a few points).
• Today's high was level with the high 20 days ago, i.e., the August high.
• The market took 12 days from the August high to reach its low, and then 8 days up to reach the high of today. A ratio of 1.5:1.

OK - enough of the aesthetic values of the market. What about some hard core stats?

Is it overbought?

Yes and No. The RSI is just above the 60 level. That's the level I'd expect a retracement to occur in a bear market. If this is switching over to a bull market, then there is plenty of upside left.

Looking at the 50-Leaders chart, Yes, this market is overbought. The stocks above the 10-Day MA are well above 80% and now the stocks above the 50-Day MA are at the 80% level (overbought).

A few days consolidation with a downward bias would be healthy for the market.

Now ... for something completely new. I've never done this exercise before, so I have no historical basis for assessing the evidence, but the following figures did concern me. Today was a strong up day (XA) up 0.83%) - nothing extraordinary, but solid.

23 out of the 49 50-Leaders finished lower than their opening price. (Yes, dear reader, you read that correctly. There are only 49 stocks in the 50-Leaders because Lihir Gold has been taken over by Newcrest and hasn't yet been replaced in the 50-Leaders. So, at the moment, only 49 stocks show up in the 50-Leaders.)

So almost 50% of the 50-Leaders finished below their opening quote.

Is something amiss here? It sure looks like it to me.

Now, have a look at the first chart - a 5-Day 15-Minute chart. I've seen hundreds of charts with formations like this - a gently sloping uptrend wedge. More often than not, they break to the downside. They don't have to. But usually they do.

So - the evidence/prognosis is?

We're at medium term resistance.

Lots of indications suggest a downward movement here.

If the market can overcome the negatives at this point - we're in the grip of a very powerful move.

Forget about September being the worst month of the year - just hold on to your hats and enjoy the ride.

Cheers

Red