Wednesday, December 23, 2009

9 OUT OF 9

As I noted yesterday the tech sector has broken higher out of the recent coil. It appears to be trying to drag the rest of the market with it but I also noted this isn't a particularly positive development. It would have been better if the market had broken down as we would then expect the decline to be brief followed by a much stronger surge higher. Now we are faced with the odds being for this breakout reversing soon followed by a much longer correction.

I'll also note that 9 out of the last 9 years tech has experienced a significant correction during the first quarter, often in January.

The worst corrections have tended to follow after powerful moves in December.

I think the breakout of the coil now puts tech into that camp.

Another warning sign for everyone listening to the media hype tech is found in the point and figure chart.

Whenever an asset puts 20 X's in a row without a correction it's in an extremely overbought condition and subject to a hard reversal.

The cubes now have 19 boxes checked without a correction and heading directly into the seasonally weak 1st quarter.  

This probably isn't the best time to follow the herd.