While I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. At this point, any call for a correction is at best conjecture [as evidenced by the following 4 indicators]. Words: 399; Charts: 4
So writes Cam Hui (http://humblestudentofthemarkets.blogspot.ca) in edited excerpts from his original article* entitled Correction? Watch The Cyclicals!.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Hui goes on to say in further edited excerpts:
SPY At New High
Regular readers know that I have been cautious on stocks lately. The market action last week is best characterized as volatile and sloppy. The new high achieved on SPY on Friday was accomplished on low volume and a non-confirmation on On Balance Volume (OBV) [as seen in the chart below so,] at this point, any call for a correction is at best conjecture.
CYC:SPX Still In Uptrend
I am watching the relative action of the cyclical stocks to see if a correction has truly begun. The chart below of the relative return of the Morgan Stanley Cyclical Index (CYC) against the market illustrates my point. CYC remains in a relative uptrend and it has pulled back to test the relative uptrend line – but I cannot call it a technical breakdown.
XLY:SPY Ratio Still In Uptrend
Similarly, the relative performance of the Consumer Discretionary stocks (XLY) against the market as a measure of the risk-on trade shows that this sector remains in a solid relative uptrend. Should the market correct, the relative uptrend line is likely to be broken.
KOSPI Still In Uptrend
Globally, the South Korean economy is known to be highly cyclical and the KOSPI is used as a measure of cyclicality. Currently, KOSPI is showing a pattern similar to the relative return of CYC to SPX – a pullback to test the uptrend line – [as can be seen in the chart below]. It could be said, however, that since South Korea is a competitor to Japan in exporting capital goods to China, the recent JPY devaluation is creating headwinds for Korean stocks and the pullback may be reflective of those circumstances.
In conclusion, while I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. Nevertheless, my inner trader is closely watching these cyclical indicators and staying long with very tight stops.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://humblestudentofthemarkets.blogspot.ca/2013/02/correction-watch-cyclicals.html (Subscribe to Humble Student of the Markets by Email)
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