Market Analysis 11/24/2009

November 24, 2009 · Posted in Weekly Posts

The last few days have not treated the commodity sector that well despite the broader equity market heading higher. Gold has of course continued to climb and is now starting to do so at an annoying rate. The action in the dollar and equities these past two days has helped clarify the charts for us. We have annotated the usual candidates as well as some of the S&P sector charts and crude oil.

Bottom line: The dollar has been trading sideways to up for the past 1 2-3 weeks. The pattern formed looks like a bear flag and is very similar to the flags formed previously during the decline each of which resolved to the downside. Looking at the SPX and RUT, the broader market appears to be in consolidation patterns that are generally bullish. The same can be said for the energy stocks (XLE), basic materials (XLB), and financials (XLF). Crude oil’s chart supports the energy stock picture. They all appear consistent with a weakening dollar.

That said, the overbought nature of gold and the thinning volume make us skeptical that a break to the upside n stocks will have the kind of legs we have seen in the past.

Stated another way: be very alert for breakout failures.

Here are the charts: