Sunday, January 28, 2007

Waiting for Follow-through

The Bears look like they're trying to cross the stream, but they continue to demonstrate curiously lame follow-through.

Even though earnings season has produced a bumper crop of lower guidance -- and there's no hope of a rate cut anytime soon -- the Bears remain unable to string together two straight sell-offs. I suspect they'll get another crack at it next week, but it's curious nonetheless.

Despite all of the turbulence, the RUT and MID actually closed higher for the week. The NASDAQ lost just -0.7%, and remarkably still sits above its EMA 50-day (though it's already slipped below the SMA 50-day).

Mostly because price has hung in there so long, the secondary indicators are sending conflicting signals. For example, the TOF Ratio and NASI are on a Sell, but OBV, High-Low and even 5-10-20 say Hold. TA dictates that as long as price doesn't break below support, a chart like the one below still deserves the benefit of the doubt. Yeah, from the sidelines - LOL.

The daily chart below does not inspire confidence, and the weekly looks shaky as well. If the crappy MACD and bearish ADX aren't enough for you, a case can be made for head-and-shoulders, or even the beginnings of a descending triangle.

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When stocks starting acting peculiar, check the bond market. Yields broke out this week, and are now back where they were on the famous NASDAQ Aug 15 follow-through. So far, stocks have ignored this development, but this may be the fuel the Bears need to drive stocks lower. Of course, it's also a classic sign of economic strength, so it's hardly money-in-the-bank either way.

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I'll do my best to check in when I can next week. Until then, the odds favor a cautious approach.



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