While reviewing the DecisionPoint Market/Sector Summary today, I noticed the Technology SPDR (XLK) triggered a new Price Momentum Oscillator (PMO) SELL signal. When I get these "attention flags", I immediately want to check out the chart.
XLK's daily chart shows a distinct rounded top formation that typically precedes a decline or correction. The PMO SELL signal generated at the top of the PMO range. These signals in overbought territory are usually valid and resolve with lower prices. Add the declining SCTR and flat OBV to the PMO SELL signal and a pullback seems likely.
It's important to review the weekly chart as well to determine targets or define longer-term support/resistance. The PMO is a short to intermediate-term indicator and as such, a SELL signal doesn't necessarily imply a deep correction. Looking at the weekly chart, strong support lies at previous all-time highs around $44. A pullback to this level of support would require a 7% decline. Not a loss every investor wants to swallow, but it will go down without choking you to death.
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Technical Analysis is a windsock, not a crystal ball.