Tuesday, June 05, 2007

Buying the Dip Continues

Well, they sure aren't making distribution days like they used to.

In what first appeared to be a grim development, stocks moved lower on Tuesday as NASDAQ volume swelled 19%. The Dow shed 125 points, and making matters worse, market internals were pathetic.

The only problem for the bears is that the sellers disappeared at lunchtime, leaving the Composite to rally 17 points and close off just 0.3%. The NDX actually made it back to unchanged. The dip-buyers strike again.

Technically, Tuesday marked the 5th distribution day in 5 weeks. However, the NASDAQ is actually 3.3% higher since then. The selling pressure is there, but oddly enough, it's producing no lasting damage. Tuesday's reversal reduced a promising distribution day to little more than profit-taking.

We know this because the fundamental leadership saw such little selling. As the broader market slid, the IBD100 held its own. It closed off just 0.2% as a respectable 44 of 100 stocks moved higher. Also, an impressive 19 stocks printed record highs, a large number for a down day. However, the real tell was that just 8 stocks on the IBD100 printed distribution days.

This is a remarkable stat, and it speaks volumes about Tuesday's action. It would be extremely unusual for a rally to be over while the very best stocks are still under accumulation.

The chart below has flaws, but it continues to keep itself together. For now, the NASDAQ is doing little more than consolidating.

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All consolidations produce casualties, and it's particularly troubling that the Financials have drawn the short straw. On Tuesday, the Banks slipped back below their 50-day, which is bad enough. However, the bigger problem is that the XLF is printing a 7-week MACD divergence.

For many reasons, the entire Financial sector has lost momentum, and this will serve as a drag on the markets going forward. How big of a drag is hard to say.

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When we went to bed Monday night, Shanghai was selling off hard yet again. However, as we slept, the Chinese turned things around in a big way. The SSEC reversed direction at 3400 and rallied 11% to close back above its 50-day.

Because the Chinese economy on fire, it's unlikely that the SSEC is done making new highs. How it gets there is something else altogether. Looking at the chart below, I wonder how average Chinese investors are processing this volatility.

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For now, the odds favor the market eventually pressing higher. There's certainly a substantial wall of worry for it to climb.

Today was also a great example of the importance of monitoring the volume on stocks you own. In this market, low volume dips on quality stocks tend to bounce back.

Until tomorrow, have a great evening.




muckdog said...

Hey dk. The market just wants to go higher. Nobody seems to be able to make a dent in this thing right now and maybe the skepticism that folks LIKE ME have is preventing the selloff. LOL.

Wait for me to give a buy signal. That'll be the bell ringing at THE TOP TICK...

dk said...

So YOU'RE the one!!! Would you puh-lease quit being so selfish and turn bullish so the market can go down. Geez...