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An interesting formation is playing out in the Financials Sector (XFJ). Let’s look at the chart:
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This is a simple line chart with a Bollinger Band and an Oscillator. Before we draw any conclusions, a few observations:
- The sector has been range trading for the last two months
- The Oscillator is showing a negative divergence
- The Bollinger Band is running parallel
- Elliott suggests the next move is up
From these observations, I can draw some reasonable conclusions:
Range trading happens when buyers and sellers are in equilibrium, i.e. neither has the upper hand or a strong view about the next move. We can suggest that the buyers will gain the ascendancy because the activity in the last two months has been in the upper band. Probably. If this comes to pass, then the next big move will be up.
The Oscillator is showing negative divergence, i.e. price is moving sideways but the Oscillator is failing to move higher in concert. But we know that wave five moves are not as strong as wave three moves.
When the Bollinger Band moves horizontally and in parallel, this ultimately indicates a strong move out of the bands.
Elliott is suggesting a move to a new high, so the next move out of the bands is likely to be upwards.
There is overall strength in the market at the moment, as we note from the XAO:
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But when we look at other sectors, we see a mixed bag with some preparing to head higher and others range trading and showing no immediate signs of a higher move.
I continue to accumulate positions in the finance sector but there are two other sectors I like:
Staples:
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And Health Care:
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Maybe not a big explosion but a likely break out is ready to happen.
There are opportunities in the market and we have had plenty of time to get on board. We should not wait too much longer as this move up may not be a long one. Only time will tell.
This is only my point of view and should not be considered a recommendation.
Enjoy the ride
Tom Scollon |