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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
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Tuesday, October 02, 2012

Major Indices and Sectors Consolidating Near the "Mean"

After simply drifting lower from their upper Bollinger Band on the Daily timeframe, most of the 6 Major Indices and 9 Major Sectors have been consolidating recently at/near their "mean"...that is, around the mid-Bollinger Band, as shown on the line charts below.

The exceptions are the Dow Transports (underperforming), Dow Utilities (outperforming), Consumer Staples (outperforming), and Healthcare (outperforming).

As you can see, the Defensive Sectors of the markets are outperforming the others at the moment, while the others contemplate a 50/50 chance of either drifting down to their lower Bollinger Band or resuming their trek upwards from here. Either way, the risk/reward ratio for both scenarios stands at about 1:1 while price remains at the "mean"...a rather risky ratio, indeed.

Assuming that the Defensive Sectors hold up to, potentially, hedge against risk of the others continuing further down, we may see some buying begin on the other Sectors/Indices before they reach their lower Bollinger Band. So, the Defensives are the ones I'd watch closely for any clues that real weakness is, generally, entering all of the markets. Of course, the Defensives could hold temporarily until the others rally for a very short while, forming double tops (based on the daily closes) at the upper Bollinger Band, before any serious pullback/correction occurs. I'd also watch the Nasdaq 100 and Russell 2000 Indices to see if they can recapture and hold above the "mean" as a confirmation of a renewed "risk-on" rally.