In Ernest Hermingway’s 1927 short story titled, “Hills Like White Elephants,” he uses the literary technique of omission (or the iceberg theory), in essence leaving much to the reader’s imagination despite some startlingly serious implications as the storyline develops.
In a similar vein, Mr. Market is leaving much to the trader’s imagination these days with divergences all over the place, but no clear resolution yet. On the one hand, the Dow Jones Industrial Average made new all-time highs again today. The healthcare stocks and staples are ignoring parabolic conditions, pushing higher yet.
But the small caps and especially transports, not to mention the homebuilders, are all weakening.
Into this final hour of trading, though, I am actually looking to see if the semiconductors can find support at the all-important $34 level from which it previously broke out. As with the other lagging parts of the market, bulls need not seem the semis flourish immediately, but rather stabilize and base out while other areas can benefit from rotation.
If further downside persists, there are only so many cracks in the foundation the market can take before it gives way.
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Head and shoulders on XLE – 5-day, 5min chart.
good eye!