A Whole Lot Of Nothing

The S&P 500 has been stuck around the 1110 are for the past month.  Some will say we’re just churning around and pausing before we move higher.  But, while the stock market has been moving sideways, the negative divergences have been building.  Below is a picture of the S&P 500 SPDRs (SPY) which correlates with the S&P 500.  For months now, the RSI (the indicator at the top) has been moving lower making lower highs while the S&P is making new highs.  This is called a negative divergence and a warning sign.  It shows the intensity of the rally is going away.

In addition, we’ve recently seen some of the leadership like Goldman Sachs (GS) and Apple (AAPL) showing some real relative weakness.  This is another warning flag to me.  There are still pockets of strength like REITS & semiconductors.  But, for a healthy market, all sectors must participate.  It’s not good enough to simply see rotation like we’ve seen the past few weeks.  I can’t get excited about buying financials for example without Goldman Sachs (GS) participating.  Now, the reason we haven’t seen an all out drop in equities is the fact that there simply isn’t enough selling pressure.  Not many people willing to sell at these prices.  They are simply locking in profits in one area and moving it to another.  In addition, demand for stocks has definitely fallen.  As I mentioned above, the intensity in the buying has gone away.  But without selling pressure, equities will continue to bounce around.  With no commitment by buyers and sellers, that means it’s a stock pickers market for now.

I’m choosing to be very cautious right now because of all the negative divergences I continue to see.  The trades I am making are in a small way.


2 Responses to “A Whole Lot Of Nothing”

  1. 1 Bill December 7, 2009 at 8:01 pm

    Karl, I listen to your radio show in the mornings on my way home from work. Today, 12-7-09 you mentioned that some tech indicators work better that others for individual stocks. ie, Stochastics did not fare as well as the commodity channel indicator did for the one particular stock you were discussing. I use fidelity trader pro, but can seem to find how to test your aforementioned comment, no doubt though you are right. Where might I find software or a website that could assist me with this type of back testing? As I have had no luck with that search. Thanks so much, your show is insightful and unemotional, which is great as a tech trader!

    With regards,

    • 2 keggerss December 8, 2009 at 7:52 am

      Hey Bill,

      Thanks for the nice comments. I use Bloomberg to do my backtesting but I believe Tradestation let’s you do that. I don’t use a lot of retail software but I’ve been told there is backtesting software out there.

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