Comments for October 7, 2011

By the third day of a short covering rally, I would have expected the negative correlation between the sectors with the worst price RS and the sectors with the strongest money thrust to indicate that the short covering was over, but it is not the case yet: the negative correlation increased from -0.34 to -0.43. We can see in the table below that many of the sectors with the strongest 2D thrust still are coming from deeply oversold commodities/energy.



Today's market reaction to the unemployment report will tell us whether this short covering bounce may falter. If the market senses that unemployment is improving, money will probably move into retail stocks and the bounce in commodities/energy will continue.