Monday, October 19, 2009

XLF Divergence and 5 Wave Decline Should get our Attention

Above are 15min 10 day charts of the XLF and the S&P cash index. The ETF that tracks the financials, the XLF, which has led the market lower and higher the past couple years, is showing us bearish information. The XLF did not make a rally to new highs today like the Dow, S&P and Nasdaqs did, and has actually lagged severely behind the market lately as you can see on the above 15min charts. Also, and most importantly, the XLF has traced out a textbook clean 5 wave decline during the same time the stock market chugged higher.

When you combine the fact that the S&P closed a gap today at 1099, the VIX is at dangerously complacent levels warning of a major top, the XLF has not confirmed the stock market's rally higher and has in fact traced out a 5 wave decline, it tells us that the evidence strongly suggests a top is in, or forming right now. The risk/reward favors the bears right now. The market may chug higher from here, but the evidence and probabilities do not support that.


adan said...

very nice very important information, as is the vix article right below - thanks!

Todd S said...

Thanks, Adan.

Gustavo said...

I agree with the first commentary.
And need to say what seeing one new day with Europe with little movement and the currencies until now the same; I cannot wait an impulsive movement south today.
Patience and more patience.