Monday, January 22, 2007

Looking Shaky at the 50-day

The best thing that the Bulls have going for them may be the Super Bowl.

I'm just joking of course, but as the story goes, an old-school team in the Super Bowl is good for the Dow. Even though this year there are two old-school teams, in real life, earnings are far more important. This is unfortunate, because the slowdown has finally hit earnings, and more importantly, guidance. This has made buyers scarce, and Super Bowl or not, the indexes are weak as a result.

Volume eased today on the NASDAQ's slide, which ordinarily is good. Also, the Composite bounced off the 50-day, which is usually another good sign. But the market internals were awful again today. 4 out of every 5 shares traded on the NASDAQ was a sell, and out of 3,000 traded stocks, just 84 hit new 52-week highs. This is very weak action, and when it occurs at the 50-day, it's rarely a good sign.

The IBD100 had a rough day, but the NDX actually did worse. Interest in tech stocks is waning, and it can best be seen in the NDX breadth. Like last Thursday, only 17 stocks on the NDX closed higher today. The IBD100 did only slightly better, with 28 of 100 moving up.

Perhaps the worst thing about today's action was that the weakness was so widespread. 24 of the 25 sector indexes I track closed lower today. Not just tech stocks, but retail, transports, energy, REIT's, healthcare, utilities. metals and bonds moved lower. This is not rotation, it's investors sweeping chips off the table.

The chart below is still above support, but it certainly doesn't inspire confidence. The negative divergence is the most glaring problem, and it's not just in MACD, but also in Money Flow.

Maybe not tomorrow, but the market looks like it wants to break lower. Stay cautious.



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