Market Comments 21/2/2011

The market today was down moderately: XJO -0.7%. Volume was much higher than the 50-Day Average. Given that Monday tends to be a light volume day - that makes today's volume even more significant.

Indicators based on the XJO are on the verge of turning bearish. You don't need me to spell it out - just take a look. MACD Historgram and Directional Indicator are close to crossing below their Zero lines. Given today's downward momentum on above average volume, it seems highly likely that those indicators will cross below their Zero lines. That's bearish.

But - have a look at the Small Ordinaries. Why? The Small Ordinaries give us an idea of "breadth". Unless a move upwards in the market is broad, it's being carried upwards by fewer and fewer shares. Eventually, unless breadth improves, the market must fall.

The Chart of the Small Ordinaries shows that, relative to the XJO, the Small Ordinaries has been falling since the beginnine of 2011. The bottom pane tracks the relationship of the Small Ordinaries to the ASX200 (XJO).

Now - there are no givens on the stock market. But, if breadth is falling, and the market falls on above average volume ..... what's the conclusion?

Good luck

Red