Thursday, May 17, 2007

Rotting Internals

I'm still on the chain gang tonight.

On the bright side, Thursday saw a pullback on low volume. The IBD100 slipped the same amount as the NASDAQ, and IBD100 breadth was 50% better than the NDX. The Banks, Cyclicals, Energy, Transports and Tech stocks all continue to look OK, and the TOF Ratio is steady.

However, I'm not a fan of the continuously weakening internals. A big part of it is the rotation out of small-cap stocks. However, without breadth, up volume and new highs, markets rot from the inside and eventually fall apart.

Dr. Brett calls the recent action a stealth correction. His Market Notes for a Thursday looks at it from the TRIN perspective, and he makes the point that the weakness is becoming "less stealthy" all the time. Not my favorite.

Rotting internals also means that your stockpicking skills are more important than ever. There's no tide out there to help raise a leaky boat.

I should have time over the weekend for a more detailed post. Hope everyone's doing well, and until then, have a great evening.



Oversold bull flag? Bearish rounded top? Who knows? but at least it was a low-volume inside day.

Image Hosted by


muckdog said...

Reminds me of those folks in 1998-9 who were talking about the stealth correction underneath the indexes. Lasted awhile before it mattered.

dk said...

Yeah, a "stealth correction" can last for quite a while. The small-cap rotation explains a lot of the problem, but unless breadth heals itself, in time the weakness will negatively impact the broader market.