I'm going to make this an abbreviated version of the newsletter simply because there's nothing new to add to what I've been guiding you through these past many weeks. Nothing has changed, although it feels as if it should. It's hard to understand why this market won't sell at least some to unwind overbought conditions. We're at or over 70 RSI's on the key-index sixty-minute charts. We have massive negative divergences on the weekly index charts. The monthly charts are also in bad shape. Froth is out of control. The bull-bear spread almost a slam dunk to be back over 40% when we get the new readings next Wednesday.
The market needs to sell. It should sell. It's still not selling and the lesson is the same. Never play what you think it should be. Only play exactly what you're seeing with regards to that magical price oscillators combination. If the MACD, stochastic's and RSI say that price is appropriate, who are we to argue? If you do you're probably going to pay a price financially as many have over and over for the past year plus. The inability to play what you see versus what you feel causes great financial pain. So in the end, as the week finished itself off, there are no sell signals when speaking of that key combination of price and oscillators. Respect that message until a different message is told.
Until rotation goes away you don't want to fight things. The reason I am bringing this up is because as soon as a few big names start to sell in a few different areas of the market folks are quick to say that the market is going to fall hard now. Today we saw bio technology stocks get hit hard, led down by two leaders, Salix Pharmaceuticals Ltd. (NASDAQ:SLXP) and Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT). We also had the semiconductor stocks fall decently today led by Intel Corporation (NASDAQ:INTC) and KLA-Tencor Corporation (NASDAQ:KLAC). There were many others.
Through all of that the market surely didn't have a bad day. Money doesn't leave, it simply keeps finding new homes. One sector or several sectors have bad earners for a few days or they get very overbought, thus money leaves those areas but instead of going in to money markets or elsewhere they go the sectors coming off back tests that have unwound those key oscillators in a bullish fashion. Don't get emotional with the big picture stock market just because a few areas start to struggle. Rotation is still the game and until that goes away it will be very hard to reverse the current trend in place.
The market needs to sell. It's that simple. Until it does risk is higher than we'd like but that doesn't mean you have to be all cash. Some scratch in the game always makes sense in a bull and that means you'll take a hit on a play or two when the market finally sells off. If we had stayed all cash we wouldn't have had the recent gains so you have to take a little bad with a lot of good. So keep a bit of your dollars in the game but be careful not to overdo it based on the warning signals that do still exist.