Somewhere Over The Market Rainbow

What do we know about rainbows? Rainbows are optical illusions. They appear in the sky opposite the sun. Rainbows can be full circles, although we normally see them as arcs. Although many rainbows can exist, only one can be seen by an observer, depending on the viewpoint as droplets illuminated by the sun.

How is the market like a rainbow? This recent rally is built upon optical illusions. The rally appears opposite the sun-or source of energy. The market has arced but looks like it’s headed towards a full circle. Although many factors (like the disparate economic Modern Family) exist, observers see what they want depending on their viewpoint.

Perhaps the most exciting aspect of rainbows, is that they are ephemeral. Lucky for us when we get to see them. Is that the same with the market--ephemeral and lucky when we get to trade a rally?

The Family is as colorful as a rainbow. And, depending on which sector you look at, determines how you see that rainbow. Nonetheless, what we want to explore is whether this recent rally is truly like a rainbow or fleeting to the bulls.

These are weekly charts for perspective. Interestingly, four of the six members had inside trading weeks (the range was inside the range of the week before.)

Top left is Russell 2000 IWM.

IWM had a inside week. The slope of the 50-WMA is negative which still suggests the current bull phase is a weak one. Watch the way the range breaks in the coming week.

Middle top is Regional Banks KRE. With an inside week and a negative slope on the 50-WMA, the bias is bullish but with caution. Furthermore, the 50-WMA is getting closer to the 200-WMA, which could mean renewed selling could lead to a death cross.

Top right is Transportation IYT. Another inside week with the 50-WMA slightly neutral but leading toward a negative slope.

All of these charts suggest that they are ok for now, but can easily sell off.

On the bottom left is Granny Retail XRT. XRT had an inside week and is in a death cross or bearish phase. As the weakest member of the Family, the continuing decline of the slope on the 50-WMA suggests more selling is on the way.

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