The Herd

Since the entire herd was expecting this pullback, it should come as no surprise that the downside move has been so stingy.

As The Worst-Is-Over Rally gives way to the Told-You-So Correction, it's noteworthy that NASDAQ volume has declined for two sessions. Considering that the market was actually mixed on Monday and the NASDAQ has eased just 1.6%, it's clear that institutional investors are reluctant to unravel their nine-week buying spree. Throw in economic gangrene and oil approaching something like $1 million/barrel, and the bulls look remarkably tough.

After three days of selling, little technical damage has been inflicted on the NASDAQ, while the various secondary indicators have all had a chance to cool off a bit. After a weak start to 2008, the NASDAQ is now the market's leader. It's logged just 3 distribution days in the past 8 weeks, while tacking on over 300 points. As energy stole headlines on Tuesday and NYSE bellwethers sank, AAPL, RIMM, GOOG and BIDU all quietly closed higher.






On the other hand, the Dow is absorbing some heat, and has seen 6 distribution days in the past 5 weeks. Two bear raids in 11 days left a nasty double top, and it looks like the Dow has more work to do before it's ready to move above resistance. The $OEX is printing a similar formation.





It's hard to make the stock market stay down without heavy selling, and there's been little of that so far. On Tuesday, just 19 stocks on the NDX printed distribution days. Even more boggling, a mere 5 stocks(!) saw heavy selling on the IBD100.

Tomorrow offers another day for the sellers to step in, but the current action is telegraphing a market in profit-taking mode. Given there's every imaginable flavor of weak economic news at the bear's disposal, it will be interesting to watch investors sort this one out.

Until then, have a great evening.

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dk