Thursday, May 24, 2007

The Selling Hits

It's just a coincidence of course, but whenever I travel, it always seems that the market goes down. I 'm so used to seeing red while sitting in airports, that I even gave it a name:

The Travel Put.

Thursday extended the Travel Put streak, as stocks fell on a big jump in volume. The action inflicted significant technical damage, and with just a little more follow-through, it could be the unmistakable start of the Summertime Blues.

As the indexes fall towards support, the real problem is that the trifecta of secondary indicators I follow are weakening even faster.

First, the IBD100 had a bad day. It tumbled 2.2% -- farther than the broader market -- and a whopping 92 of 100 stocks closed lower. Even worse, the selling accelerated sharply, as 36 stocks printed distribution days. That's a big number, and is not a good sign on such a big price move.

Second, the market internals were lousy, and charts of the internals show that the weakness is picking up steam. The most troubling is the NASI, which has been struggling since the Feb selloff. NASI put in a lower low in March, and is now threatening to go even lower.

Third, the TOF Ratio is poised to print a Sell, as option investors have shifted to puts.

The chart below shows five key support levels for the NASDAQ. When the fundamental leadership, market internals and option metrics are all unanimous in their weakness, price support tends to be more porous. Also, none of the technical indicators offer much promise either, and the odds clearly favor lower prices.

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There was nowhere to hide on Thursday, as investors sold everything -- stocks, bonds, cyclicals, defensive, commodities, energy and precious metals. In fact, all 32 subindexes I follow closed lower. This is the unusual sign of a market being re-priced, and no hint of rotation was visible anywhere. It's ugly, though generally it's not a sustainable situation.

It's a great time to work on watchlists, paying particular attention to stocks which avoid the selling. Even more, it's definitely the time to be patient. Beware the Siren song of the first bounce. It will look seductive, but statistically most investors do better just strapping themselves to the mast and gritting it out.

Until tomorrow, have a great evening.




muckdog said...

It makes this week interesting. We have the holiday weekend effect, plus later next week is the end-of-month 401k adds. Plenty of reasons to see buying come in. Yet... The technicals don't look great here. Big selling volume today.

Trading Goddess said...

LOL! My dad says the same thing that when he travels the market takes a hit. He is almost on the verge of never going anywhere again.


dk said...

muckdog -- I agree that it's a weak-looking market. But as you say, there's a bid under this thing, and it will be interesting to see how soon it re-emerges.

goddess -- thanks for the comment...funny about your Dad. Beware I'm flying again on Tue, May 29 - lol.