Tuesday, August 23, 2011

The Crisis In Leadership

No, I'm not referring to the clowns on vacation from our congress. We have an astonishing lack of leadership when they're in town, too. I guess they're all tuckered out. Screwing up the world like they have done is hard work.

My title refers to the market leadership. The leader groups that have been signalling the future direction of the market for the last 3 years, the retailers (RLX), technology (QQQ), the consumer discretionary stocks (XLY), and the transports (TRANQ) have a conflict going right now. One says new bear market. Two say bull correction. And one is undecided. They've typically been in agreement up until now. Let's look first at the one screaming new bear:

This would be the Dow Theory important transports. They have broken down from any semblance of a continuing bull and are leading the charge down. The same can be said of the important financials. It's hard to have a bull market without the financials participating. Doug Kass, who called the March '09 bottom to a tee, is now saying the banks have bottomed. Jim Cramer says the group is still toxic.

If you look at the retailers, supposedly the sore point of the recovery, you see this:

A trend line from the March '09 bottom appears to be intact. But if you look at all the consumer discretionary stocks, you see a breakdown more like the transports:

The accumulation trend is beginning to break but holding, but the price action has already broken. As for technology:

This looks just like the retailers - a brief puncture of the 140/200 day ema moving average pair but on a bull trend support line.

This sets up a battle between these stock groups. Either the groups that are barely clinging to bull mode will be pulled down into what the transports are doing or the transports will be pulled back up into confirmation. Stay tuned.

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