Saturday, February 07, 2009

Weekly Update

Here's my ETF basket update using the new 4 linear regression study (75,30,11,M7) detailed last weekend.

The Qs have led the way up for the past 3 weeks and are now in overbought territory. As in the past, overbought and oversold conditions can continue for quite some time, so this situation alone should not be a trigger to bet against the Qs. A more mean regression oriented theme would be to expect the other sector ETFs to gain more ground proportionate to the Qs, before a reversal kicks in. The midpanel technicals in the IWM, XLF and XLE reinforce the probability of a bullish surge with short term targets of IWM-50, XLF-12 and XLE-51.

The current market strength has been widely attributed to the wonderful new (emerging) bail-out plan and may in fact be the catalyst for a market to kiss the channels good-bye to the upside. These moves would, of course, be driven by hope and hype, more so than actual fundamentals since that $800B or $1T has to come from somewhere, and mostly that's yours and my pockets, so there's a dark side to the coin, whose implications are seldom mentioned by the talking heads (sorry, got off a little tangent there).

Below, the VIX and T2100 (advance/decline line) with the VIX reflecting a neutral to bullish stance hugging the zero line while the daily T2100 is strongly bullish for the short term (next week). The weekly T2100 is at the upper band of the LR30, but the mean of the LR75, so it's some got the potential for a 5 point move up before becoming seriously overbought.

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