Thursday, June 07, 2007


It's all fun-n-games until somebody pokes their eye out.

Stocks took a thunderous shellacking on Thursday, and like a bad smell, the selling permeated everything. For the third straight day, all ten stock sectors fell, though today it was especially bad.

The much-discussed bond debacle meant that the financially-heavy NYSE had it worst of all. Though its price and volume action were terrible, the NYSE internals showed just how bad it really was. Just 8 out of 100 stocks on the NYSE closed higher, while only 6 of 100 shares traded was a buy. Out of the 3,300 NYSE stocks, a measly 40 hit record highs. It's been a long, long time since market internals on any exchange have been that lopsided.

Another bearish development is that the TOF Ratio saw its first EMA crossover on the same day that IBD100 finally saw strong selling. According to Investor's Business Daily, the IBD100 fell 2.8%, but my tracking portfolio clocked it 3.3% lower. Like the NYSE, just 6 stocks moved higher, but the zinger was that 41 of 100 stocks printed distribution days. Institutional investors are starting to dump the market leadership.

When a chart sees this type of technical damage, it usually take a while to recover. Fundamentally, the yield leap has done what two Chinese selloffs and rising energy costs couldn't. The market is spooked, and both TA and FA have noticeable stress fractures. Time to be patient.

Image Hosted by

The market performance was so poor and widespread on Thursday, that most charts share a similar look of horror. About the closest we get to "warm and fuzzy" is that some indicators are getting so bad, that they're almost good.

Since this market has been notorious in its ability to whipsaw, a look at important indicators nearing extreme levels of "badness" may offer some perspective. These indicators work best when the market is oversold -- which it's not yet.

First, the NYSE Hi-Low Index shows just what a poor day it was. As a result, notice that it spiked to levels not seen since July 2006. The fall has been so abrupt that the 10-week still isn't even at a Sell.

Image Hosted by

The TICK chart is also nearing what has proven to be recent cycle lows.

Image Hosted by

Option volatility has the VIX leaping way out of its Bollinger banks. It's unusual for it to remain this way for long.

Image Hosted by

Finally, the chart that made grown men cry. Also a bit stretched out of its banks.

Image Hosted by

I've described many times that selloffs are incredibly helpful in deciding what's worth owning. Wheat is being separated from the chaff right before our eyes. If you've adjusted risk properly, you can really enjoy the process.

Be patient, and for heaven's sake, sell anything seeing distribution. Selloffs are no time for hope.

Until tomorrow, have a great evening. And perhaps a cocktail.




Bill Luby said...

Consistently the best end-of-day market commentary in I can put my cursor on. Well done once again, dk.

FWLIW, the VWSI now sits at -7, which calls for a syrah. I just happened to have an amazing syrah today, a Rosenblum England-Shaw 2004 Syrah. If we hold at -7, I'll talk about it over the weekend. In the meantime, a cocktail is fine too...

dk said...

Risking a violation of "road rules" discretion, one of my travel indulgences is to buy better-than-normal bottles to sip at the end of the day.

With this market however, it's taking longer for me to reach that precious last drop -- but there's a lot of wine in those darn boxes!

Trading Goddess said...

My dear dk,


Your post is none too happy!


I think I will join you boys in that cocktail...