Thursday, January 25, 2007

Dangerous Signs

Lately, it's the signs themselves that have been causing most of the damage.

The year started with signs suggesting investors should be long technology and short energy. Then, the signs reversed, leaving once-comfortable investors feeling very uncomfortable.

On Thursday, discouraging housing data saw Wednesday's jubilant rally reversed in one dramatic move. The NYSE actually saw two days of gains wiped off the books. Overall, the selling was heavy, and every major sector closed lower. NDX breadth was telling: 93 of 100 stocks declined. On the IBD100, 88 of 100 moved down, and 34 of those logged distribution days. That's very weak action from the fundamental leadership.

The big question now is whether or not the Bears will demonstrate the one thing they haven't since last summer: follow-through. The major indexes all remain above important support. Until that support fails, the Bears aren't going to gain any lasting credibility. For those investors loaded up with bushels of QID, it's about time for the Bears to improve their image.

In the meantime, watch out for those signs.



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