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DECLINE CONTINUES Last week I wrote: "While the bulls currently appear to be putting up a pretty good fight against a further price decline, and may even be able to spark a rally, decisive tops have been established, both in price and internals. A brief rally is possible, but following that, I expect that the November lows will be challenged." Additional expectations from Last week: "It appears that a short-term bottom is currently forming from which a short reaction rally could launch. This is a common result of PMO crossovers, and the rally normally pulls the PMO back up toward its 10-EMA." So far the market has been following that scenario to a "t" (although we're still waiting for the big decline to kick in). There was a small breakout, which pulled the PMO up toward its 10-EMA. Then prices broke downward, causing the PMO to top below its 10-EMA. This is a perfect setup for a continued price decline. Please keep in mind that "perfect setup" does not mean "guaranteed result". There is still a short-term rising trend line that needs to be penetrated.
The next chart shows that our medium-term price, breadth, and volume indicators are still in a down trend and have plenty of distance to go down before they reach oversold levels, so the internals still allow for continued price decline in the intermediate-term.
Bottom Line: The market hasn't exactly been falling apart because (I believe) the Fed and/or Treasury continue to provide support buying when prices fall too freely; however, the only rallies that have materialized are driven by short-covering, and they fizzle quickly. I still believe that the November lows will be tested soon.
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