Tuesday, March 29, 2011

Sector analysis and startegy

The futures are up 44 points as I write this and after the market action last week, the bulls look back in control, but the sector charts after are telling a different story. Most of them look bearish signaling a move down. Here are a few of them.

XLF (Financials) - Presenting a bearish outlook, one has got to start with the Financials! They have been struggling with the MA(20) ever since the big gap down in February and today was no different. I wouldn't wanna be long this chart. Further resistance ahead in form of MA(50) and 16.75.

XLK (Technology) - MA(50) was big time support till February and now expect the same to act as resistance. Rejected here in the last two trading days. Can't ignore the bearish volume pattern.

XLE (Energy) - Tried to take on the resistance today, succeeded for a while before failing in the end, resulting in formation of a bearish doji. Also, a negative MACD divergence developing. Will tomorrow's action confirm the bearish signal being given by the doji or will the bulls fight back? An important day for the energy sector tomorrow in my opinion.

XLP (Consumer Staples) - Similar to energy sector.

XLU (Utilities) - Low volume move up after getting hammered during the move down. Rejected at MA(50) today. One of the most bearish sectors.

Undoubtedly, the bulls have made an impressive comeback and been in control during the last week or so, but at the same time, it's hard to argue with the bearish picture painted by the charts above. So, what to do? Here's what I am going to do. My account is close to its all time highs (reached there on Friday before giving a little back today) and I am in no mood to give back any of my hard earned gains to the market. That said, I am not going to short here just out of sheer respect for what the bulls have done during the past one year or so and what has happened to shorts at each and every pullback. The markets have reached that point where you have to be quick in taking your profits and even quicker in taking losses. There will a come a time when market will demand that we go all in but I believe, that now's not that time. If I had to sum up my stand on these markets in two words, it would be CAUTIOUSLY LONG.

Take care and good luck!

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