Wednesday, January 17, 2007

Inflation Fears Trigger a Selloff

The market got a one-two punch today, as higher inflation and shaky tech news created real selling on the NASDAQ.

Composite volume picked up 7% to produce the first true distribution day in weeks. Market internals were lousy too. The IBD100 fell 0.8% -- the same as the NDX -- but only 31 of 100 stocks moved higher (40 NDX stocks moved up). That said, until the IBD100 falls farther than the broader markets, it's not yet flashing a critical warning sign.

Today's weakness wasn't just the fault of INTC and CSCO either. The FCC put the kybosh on the XMSR/SIRI merger and LVLT got downgraded to a Sell. In fact, a look inside the NDX shows that 18 of the 20 worst performing stocks were tech stocks. For a variety of reasons, tech is being repriced. Following the volume on a stock-by-stock basis is the only reliable way to tell what's just going on sale -- and what's actually headed out to pasture. As you ponder your portfolio, bear that in mind.

We get even more potent inflation buzz from tomorrow's CPI number, so be prepared. Investors remain obsessed with a rate cut that's unlikely to happen anytime soon. Soft landings have a dark side: they don't come with rate cuts.

Overall, investors haven't been too impressed with Q4 earnings either. As expected, AAPL reported a blow-out quarter, but guided below estimates. That won't make you many friends on Wall Street, and Apple may get its stem twisted tomorrow. Also, a lot of banks and financials are reporting this week. This is important, because we finally get to see how bad the yield curve inversion hurt these guys. This could be another source of negative pin action.

Like yesterday, the chart below points to more selling ahead. This week's OE may prove to be the most exciting expiration we've seen since last spring. The next two days could be a wild ride.

Until tomorrow, and have a great night.



Image Hosted by

No comments: