Market Comments 9/12/2010

This chart is beginning to ring some alarm bells.

XAO up today +0.75% on above average volume.

All's well. So where are the alarm bells.

1. The chart is now at a new 20-day high. That's a level at which reversals often occur. The chart might hang around there for another couple of days - but a fall then is highly likely.

2. The Daily Slow Stochastic is stubbornly up in the overbought zone. A fall below 80 would be a short term sell signal.

3. Two out of the last three days have been solid up days on above average volume. On both of those days the XAO finished well up near the top of its candle. Those are the types of days that smart money sells into - distribution from strong hands to weak hands.

None of that means we must get a big retracement like we saw in November. But it does send out a warning. Caution required.

Now - to a less obvious sign. The Small Ordinaries today was only up +0.2% while the 50-Leaders was up +1.0%. That imbalance in attitude to risk is also often a warning sign.

The Santa Rally so far has provided some good gains.

That Rally often delivers its gifts in two parts - early in December and then later in December - when Santa actually arrives.

I could be wrong - but I think we could have a bit of a dip in the near future. It will provide a great buying opportunity for later in the month. That is - if I'm right. I could easily be wrong. Wouldn't be the first time - wouldn't be the last time.

Cheers

Red