Time for a Retracement?

Yesterday, I mentioned a technical phenomenon that is referred to as a “golden cross”.  The reason this is significant is that our rules are to only buy stocks that are trading above their 200 day moving average.  The significance of the golden cross is that the shorter 50 day moving average crosses above the 200 day moving average, indicating more bullish sentiment, and a higher probability that the stock will continue to move up.

Over the past few weeks, we have experienced quite a strong recovery from the lows in North American markets.  Since the March lows the Canadian market has moved approximately 40% and the US Markets have experienced about a 20 to 25% recovery.  According to Don Vialoux, a technical analyst and specialist in seasonal timing, indicates we are entering a period of random price movement with little seasonal bias.  He also indicated that his analysis suggests that after such a strong move, it would not be surprising to see a retracement of the current move by up to 50% which would complete an “inverse head and shoulders” pattern on the indexes.  If you were able to successfully participate in this move, it may be prudent to take profits or use options to provide some protection of positions you are holding.

Futures this morning are negative and the DAX is negative, indicating a negative open.  The market condition scans are positive, but the numbers are weak, indicating no strong directional bias.  The market bias indicators continue to show statistical sell signals.

Index	Change	%Change	Level	Phase
TSX	-15.27	-0.14%	10588.79	Bullish
DJIA	+19.43	+0.22%	8740.87	Recovery
Nasdaq	+8.12	+0.44%	1836.80	Bullish
SP 500	+1.87	+0.20%	944.74	Accumulation
Russell 2000	+5.30	+1.02%	526.63	Accumulation
NYSE	+13.80	+0.22%	6182.87	Accumulation

Source: Telechart

Short Term market outlook:

Bias: Scans showing a neutral to postitive bias

Energy: weak

 Primary Trend: sideways

Sector	Phase
Consumer Staples	Recovery
Healthcare	Recovery
Technology	Bullish
Utilities	Recovery
Energy	Accumulation
Financials	Recovery
Industrials	Recovery
Materials	Recovery
Consumer Discretionary	Recovery

Source: Telechart