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Sunday, December 12, 2010

Sunday Observations, a detailed look at the Summation Index!!!

The Summation Index(SI) is definitely at a major inflection point now, teetering on both bullish, and bearish short-term possibilities for the equities markets. I would normally say that the Summation Index is short-term bearish as of now because the recent price action more closely resembles a period of consolidation before a resumption of the original trend, in this case down. Normally when the Summation Index puts in a trend change, it will quickly accelerate in the opposite direction printing bars that have an increasing distance between them. So, far, this has not happened, the last seven bars are tucked together in a tight range and not breaking out. However, the RSI and the STO are both in over-sold territory and are ripe to turn bullish. This would suggest that the Indexes still have quite a bit more upside left in them of the trend does change back to bullish, 1-2 more months. This would be confirmed if the black bars do start to accelerate to the upside.
Short-term I believe the SI is neutral until is can confirm a trend. Long-term, this is altogether a different story, a VERY bearish scenario is building in the SI, MAJOR divergence, the SI is not printing the same higher highs as the major indexes have been doing over the last few months. The SI topped out way back in late September of last year (2009) and since has been printing lower highs. Even this latest rally has failed to produce higher highs on the SI. One thing that is different between this rally from the 2009 lows, and that of the previous rally starting back in 2003 is that the SI is making lower lows from its peak. This does give more credence to this rally as being a bear market rally.
Quick note, coincidental, the SI is currently at the same level now, as it was during the 2008 top!!!
**Don't forget to check-out my Week-end Observations post from yesterday.

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