Chart of the Day: Key to the Market

Looking for a key to the markets? This chart just might be it!

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Over the past year, there’s one sector that’s been leading much of the market up: Brokers.

If you’ve been watching Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), or most of the other broker/dealers, you’re plenty familiar with seeing new highs.

And it’s certainly not been a fluke either. Ascending markets, coupled with record M&A activity has brought home boatloads of cash for these stocks. But now, with uncertainty surrounding interest rates and a potential slowdown in mergers looming, this sector could be in for a pullback. And it could be the key to the market in the short-term.

For a better idea of what will happen, simply watch the Amex Broker/Dealer Index (AMEX: XBD), which is nearing the pinnacle of short-term consolidation. What’s more, the coiling I’ve just referred to is only slightly above the longer-term ascending support line.

Of course it’s always important to ‘trade with the trend,’,but in the case of the below WEEKLY chart, you’re going to want to keep a steady eye on ascending support. At present, a violation of the 240 area could mean a hefty pullback is just around the corner.

Exit is everything.

2/26/07

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