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November 3, 2005

Losing an appetite, are we?, Thurs., Nov. 3, 2005, 3:21 PM

MarkM wrote to say: There's something funny happening in this market. Several of the stocks I am watching are starting to crash out on their RSIs and turn south. I am a novice at this but I sense struggling going on to make further headway for now. Too far too fast."

I replied directly that I noticed, and have commented directly to other individuals in the past hour too. Remember I didn't go bullish; I merely said my tactics were changing to go with an upward flow.

As for momentum indicators like RSI, they will fall off when the price momentum of the price series slows its earlier higher rate of growth.

It's like disinflation. There is still rising inflation, but the problem is becoming increasingly less painful.

Once an upward price trend is set, that trend can continue for a very long time while the RSI is falling. If RSI is your only tool, then you might be missing a slow train to higher prices.

In recent weeks, I have noted quite a number of instances of what the technical analysts call divergence", which is where a momentum indicator (say RSI) slopes in a different direction to the price track. In this case the indicator is often bearish, while the U.S. equity price indexes in the past few weeks have been rising.

So how could I go bullish? I didn't, and won't. I need to have the weight of the evidence in my favor before going bullish. For now, there are too many indicators like RSI (in some cases), sustaining high cost levels for energy, rising interest rates/yields, slowing earnings growth rates, increasing guidance warnings, increasing global inflation, and so forth.

I'm just playing this short-term wave as a time to add to income, and to avoid capital loss by being short.

At some point there will be a tipping point. I'm not looking to play the downside (although in some cases I might); I'm waiting for the day I can publish in good faith the Cara Global Best 100 Companies along with a list of Accumulation Candidates. Then the rest is up to you.

And btw, I might be going on vacation tonight.

If you recall from my blog article at 4:58 pm yesterday: "And if the Gnomes decide to close it (tomorrow) between 1216.50 and 1216.99, I'm going on vacation. It'll be a farm holiday actually....Baaaa."

With little more than 30-minutes left in the session, the Gnomes have the S&P 500 Index at 1216.65.

I am being put into pen number 6 as I speak.... Baaaa.

Posted by Posted by Bill Cara on November 3, 2005 03:22:30 PM | Category: Cara Today in the Market