Monday, June 25, 2007

Amber Alert

The devil's beating his wife.

Growing up in Texas, this expression described the paradox of a rainshower while the sun was shining. Rain is falling in broad daylight on Wall Street as well, as neither bears nor bulls seem capable of delivering the final death blow.

The problem for the bears is that the selling continues to lack intensity. The problem for the bulls is that price levels are falling like flies.

Stocks gave back solid gains on Monday and the SPX, WLSH, MID and RUT all closed below their 50-day. However, volume was unspectacular. The NASDAQ closed at its lower trendline, but trade was just average, and its 50-day remains untested.

Adding to the mixed picture, leading stocks continue see light selling pressure. The IBD100 slid 0.8%, but just 12 stocks printed distribution days. As bizarre as it sounds to say, this is not normal market behavior at important cycle tops.

That said, this isn't normal behavior at durable market bottoms either. Stocks appear to be headed lower, and the recent market moves have given observant investors plenty of time to adjust risk. The bears are in control, but for them to maintain it, they need serious waves of downside selling pressure.

The NASDAQ gets an Amber Alert tonight as it tests a shaky trendline on deteriorating technical indicators. A date with the 50-day appears to be a given, and a confirmed failure below triggers an extended forecast of foul weather.

Image Hosted by

In a revealing example of how stocks continue to behave like The Undead, consider the XLF on Monday. As subprime contagion fears swelled, XLF bounced at its 200-day and closed down just 0.8% -- less than the RUT. The Banks were off just 0.4%. XLF is a terrible chart, but buyers continue to step in and rescue it from the jaws of death.

Image Hosted by

While the SOX looked awful and gave up last week's breakout, the Tech Index slipped just 0.3%, and Transports and Drugs actually closed slightly higher. More examples of The Undead.

Image Hosted by

Could the VIX have double-topped? In truth, volatility is so meth'd out that arbitrary limits on the VIX are meaningless at this point. Expect wide price swings and choppy trading to continue

Image Hosted by

While the broader market seems poised for more declines, institutional investors haven't abandoned stocks with the very best fundamentals. This is an unusual sunny spot in an otherwise rainy equity market. It suggests that for now, we're witnessing elaborate profit-taking.

But that could change very quickly.

Until tomorrow, have a great evening.




Anonymous said...

the market always does what hurts the most to most of the people and I agree that for now the action over the last 10 days should be viewed as profit taking and hedging
LT positions. This means that very likely we will see Dow 14,000 over the next 4 weeks but with respect to the Hindenburg Omen sharp sell-offs after that should be expected
as well.

dk said...

The tug of war continues. Thanks for dropping by, PMK.