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The State of the Trend

Last week our expectation was that the market is due for a brief period of consolidation. The SPX made a new high on Tuesday and then finished the week a hair above that high.

In the process, the index broke above the ascending wedge in play since the beginning of October, and is trading in what appears to be a new trending channel:

SPX Daily Chart
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The Vix market timing system remained on a buy signal, trailing a 85+ SPX points upside move:

GSPC Weekly Chart
Chart courtesy of OddsTrader

In a couple of days at their next meeting, FOMC members will likely congratulate themselves for a job well done and promise to keep things the way they are. So it would be interesting to examine which industry sectors have benefited the most from their largesse.

It should come as no surprise then, that the best performing industry groups in 2013 are: Music & Video, Electronic, and Toy & Hobby stores, Gaming Activity and Internet (thanks to booming business in online porn and gaming, no doubt). They all fall within the broader category of consumer discretionary products (cyclicals) which tend to do well and outperform the market during economic expansion (or the accumulation of easy debt if you prefer). When the time comes, they should also be among the first to signal that the party is coming to an end.

On the flip side, the worst performing groups two years in a row are Gold and Silver. There are some preliminary signs, however, that there may be a turnaround in store for this group.

Currently, both gold and silver are testing the upper levels of their respective short-term downsloping channels. As long as gold manages to break outside that channel and stay above the 50% retracement level, we'll give it the benefit of the doubt, despite the fact that it will still remain within the confines of a larger downsloping channel:

Gold Daily Chart
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Silver is in a similar technical position, and the level to watch there is 20.70:

Silver Daily Chart
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