Sunday, June 10, 2007

Nice Bounce

After three days of heavy selling, stocks bounced back on Friday.

While the white candle was impressive, the 18% drop in volume meant short covering and bargain hunting drove the action. Considering everything that happened in the global credit markets this week, the bears now have the ball. As always, for this weakness to really stick, the sellers need follow-through.

The market internals snapped back on Friday, as did the IBD100, but neither gave stellar performances. The IBD100 added just 1.1%, lower than the NASDAQ's 1.3% gain. After three days of damage, only 5 stocks on the IBD100 made it back to record highs, although distribution did fall from 41 stocks down to just 8.

The chart below shows that a war is being fought within a narrow, 50 point band on the Composite. The red arrows mark the four biggest distribution days in the past 7 weeks. Each time, the sellers ran out of gas and were unable to push prices lower. The problem is that the buyers couldn't push prices higher either.

This time however, the bears have four new advantages: higher yields, wobbly market leadership, strong put buying and the summer doldrums. If the bears can't make something out of these four horsemen, they really have some 'splaining to do.

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For all the weakness and bond shenanigans, sellers have failed to pin the NASDAQ at its 50-day for six straight weeks. It looks like they'll get another chance, but for now the IT uptrend still remains intact. From the looks of things, one more bad week for stocks and numerous technical indicators will flip negative.

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Less shackled by financial stocks, the NASDAQ outperformed the blue chips this week. Much of the strength was centered in technology, and the Tech Index outperformed all the broader indexes this week. There's more going on here than Jim Cramer, and tech is a sector to keep your eyes on.

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After 17 days on the road, I'm thankful to be back home again. I'm looking forward to a home-cooked meal and my own bed, so I'm cutting it short this evening.

Until tomorrow, have a good one.



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