Index + Sector Analysis / European Markets

The Imperial Inquisition

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I expect an inside day and/or doji day today that will produce a minor bounce. If the market moves beyond box #1 and into box #2, it is deemed ‘significant’. In most cases, today’s close will determine what I will do for Wednesday, and I am giving the market a chance. I am still 75% long, and suffered only minor casualties to the tune of -0.3%. Even on such “disastrous” days, you can still come as close to breakeven as possible.

Is the market still intact? Yes, but it all depends on today’s (and Wednesday’s) action as I’d give the market a maximum of 2 days to redeem itself. Since the channel was violated and the gap filled (on the SPX), any move below 920 is considered ‘dangerous’. A move and close above 933 will bring the market back within the 15 degree ascending flag. I considered yesterday’s selling force weak, therefore, I am still 75% long and in 25% cash.

During time of uncertainty or consolidation, I keep an eye on the individual sectors (XLF, XLE, XLB, XLV, XLI, XLK, XLU, XLP, XPY). I also look at the world markets, particularly the European markets (DAX, CAC, FTSE, MIBTEL, SMSI) since their charts are under the most pressure.

The following sectors look fine: XLE, XLK, XLU
The following sectors are testing their lower trendlines: XLF, XLB, XLY, XLI
The following sectors broke their nearest lower trendline: XLY, XLV

With the exception of Spain (SMSI) and Italy (MIBTEL), the other European markets are either testing their lower trendlines (FTSE, DAX) or have already broken their nearest support (CAC).

In short, the current outlook is “neutral”. Keep those positions small and have some cash handy.

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