Thursday, January 28, 2010

Keeping an Eye on Three Trading Ranges

Are we in the midst of an ongoing bull market? Are we getting ready for a double dip into economic (and market) weakness?

I'm watching three instruments in trading ranges for possible clues to an answer: oil (USO; bottom chart); homebuilders (XHB; middle chart); and financial stocks (XLF; top chart).

We should see strength in these three if economic strength takes hold and if we see continued recovery among two of the hardest hit sectors: banks and real estate.

Conversely, if the global economy is threatened, we'd expect to see weakness in oil demand and possible continued pressure on those vulnerable sectors of the economy.