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The TOs are rising, which means the indices can still move higher. However, the triple negative divergence implies that the upside potential is limited to 1.5%-2.0%.
SUMMARY Last week we said, "The indices were unable to exceed their previous highs--as the technicals were suggesting--and they turned back down. As of Friday's close all the indicators we follow are at the zero line, which means that "technically" the markets are at a neutral point and going forward they can move in either direction. Therefore, we can't exclude another attempt at the highs; on the other hand, if support is violated, then the odds will favor a further decline to the first downside targets." (For the week of 9-18-06) Since last week, all the technical indicators have risen above their respective zero lines, which is supportive of higher prices. However, the steep negative divergences also suggest that if the indices do move higher--directly from current levels--the magnitude of the additional gains won't exceed more than 2%. Keep in mind that this week there is a FED meeting. The FED's action or inaction, coupled with the language of the FED statement, could turn out to be the catalyst(s) for a 2% advance or for a 2.5%-4% decline. In summary, if there is a rally after the FED meeting, since we believe it will not exceed 2%, we see no reason to add to new long positions. Instead we would use the opportunity the get rid of those holdings in our portfolio that have the lowest relative strength. (Also, please read "High oil prices do not cause inflation".) Ike Iossif
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