Thursday, January 18, 2007

Sell Signals Abound

Based on the performance of technology stocks today, you'd think the world's going back to the abacus.

Tech stocks were crushed as the impact of the slowdown has finally hit guidance.  Tepid outlooks from INTC, AAPL and LRCX spread across technology, sparking downgrades and massive selloffs.  NDX breadth says it all:  just 17 of 100 stocks closed higher today.  NVDA, KLAC, BRCM, RIMM, MRVL, SUNW, YHOO, DELL and 28 others -- 36 in all -- closed off more than 2%.

As a result, NASDAQ internals were miserable, and the worst was the Up/Down Volume.  An eye-popping 83 of every 100 shares traded on the NASDAQ today was a sell.  This is unusually lopsided, and strongly suggests the selling isn't over.  

Corroborating this is the most troubling indicator of all:  the IBD100.  It gave a clear Sell signal today, as investors abandoned the market leadership with extreme prejudice.  While the NASDAQ fell 1.5% and the NDX lost 1.9%, the IBD100 tumbled 2.6% on heavy volume.  Also, breadth was worse than any broader index, as just 12 of 100 stocks closed higher.  In most cases, IBD100 selloff days like today are like roaches:  there's never just one, and that's not encouraging for the broader markets.

As you contemplate catching a bounce of your favorite tech stock, remember that it will take time for this weakness to work through the system.  For two months the signals have been ambiguous, and tonight, they're not.   The most glaring pathology in the chart below is the MACD divergence.  The problem is that it's not just a technical weakness anymore, it's being accompanied by selling in stocks with the very best fundamentals.  This technical/fundamental convergence is ominous, and it suggests that this time the 50-day isn't going to hold.

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For clarity, below is a chart of the "other" exchange.  Though price held up OK today, the NYSE unfortunately makes a much clearer case for a double top.  Also, it never made it back to the upper band, and the recent commodity selloff has created the queasiest-looking divergence of them all.  The most promising forecast would be for this chart to hold at 8950 to put in a nice W bottom (don't hold your breath).

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"I'm a Mac..."                                                                                      "....and I'm a PC."

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Tech is in a world of hurt tonight, and most of the subindexes sustained technical damage that will take weeks to repair.  Note the glaring MACD divergence on the Tech Index, and the crossing ADX lines confirms a change in trend.  It appears that the 50-day will fail here also, which is one reason supporting the failure of the NASDAQ 50-day at some point.  Interestingly, of the seven tech subindexes, Telecom continues to hang in there, and actually closed higher today.

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The SOX has been the tech laggard, and as so often is the case, laggards get hit the hardest.  The semis took out their 50- and 200-days in one ugly move today.  This is rarely a good sign.

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The precious metals certainly aren't offering much of a safe haven these days either.  The XAU failed at its 200-day as well.  

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Commodity investors have little sympathy for today's tech victims.  They've experienced the heartbreak for months, and today oil continued to try and find a bottom.  Below is the crude ETF, included because of it's massive show of volume (note that price doesn't match the crude contract).  The heavy trade offers a snapshot of the vigorous debate which grips this commodity.  Until the forward contract breaks below $50 and really shakes everyone out, the bottom isn't in.  

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Every cloud has a silver lining, and today was no exception.   Oddly enough, amidst all the carnage there were several silver linings.

The Banks held up well, but whether they're delaying their inevitable doom -- or pointing to a shallow selloff overall  --  it's too early to tell.

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The economic slowdown was supposed to hurt the consumer but favor business and tech.  Meanwhile, the RLX hit a new all-time high today while tech imploded.  

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Housing data was at it's strongest in almost a year, which corroborates the strong consumer discretionary action today.  

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The BTK held up OK, but Drugs notched their 5th straight gain today.  Pharma typically outperforms in a slowdown, and healthcare overall is worth serious consideration.  

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Not to end on a down note, but the SMA version of the TOF Ratio flipped to a Sell today.  It's a bit more sensitive than TOF's EMA version -- which as TOF pointed out is still OK -- but this version is worth noting nonetheless.  It's been shaky, and now the cat looks like it's out-of-the-bag.

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It's OE so you never really know, but it appears that the markets have finally hit their long-awaited soft patch.  The hard selling in the IBD100 today was a new and bearish development.  If you'll recall, two months of broader shakiness had left this leadership index largely unfazed.  That changed today, and it's worth noting.  

Also, I'm not happy that the SMA TOF Ratio slipped to a Sell either.  It needs follow-through, but that's a very reliable indicator.  Throw in today's distribution day, and the signs point to caution.

Until tomorrow, have a great night.



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