Swamped

I'm a little busy right now or I'd write more, but the The dk Report Charts have been updated.

Good luck trading.

best

dk

Darkening Skies

The dk Report Charts have been updated, and near-term market conditions have worsened. Keep an eye on The 5-10-20 Timer and the TOF Ratio (charts 4 and 5) for a change in the intermediate signal.

Good luck trading.

dk

Time Machine

Stocks printed a forest of needle bottoms on Monday, as news spread that the new 3G iPhone is so awesome that it allows users to travel back in time and buy gas at cheap prices.

Even if Jobs is a liar, buyers refused to give up on stocks for at least one more day. Not only did stocks reverse course, NASDAQ volume declined for the second straight session. The Composite has notched just three distribution days during this 3 1/2-week correction, and Friday wasn't even one of them.

For all the oil-soaked drama last week, selling pressure -- especially for tech stocks -- has lacked the panicked intensity of a market rolling over. Selloffs often start slowly and build downside momentum, but so far, the bulls aren't making it easy on the bears.

The NDX below shows Monday's needle reversal off the 50-day EMA on lower trade. This is the hallmark of a bid pull -- not of crowded exits. The correction may continue, but Monday's action isn't the stuff of a market poised to retest the March lows.







The blue chips are notoriously saturated with the laggard sectors, and so have deeper problems than the NASDAQ. The SPX has spent two-thirds of 2008 trading in a 60-point range. The bears need to seize this opportunity and push the SPX down out of the purple box below.






Finally, there's a heavy dose of economic data this week, suggesting very intense trading ahead. In addition to the obligatory crude inventories, there is also the Biege Book, Initial Jobless Claims, Retail Sales, CPI and Michigan Sentiment. In light of the current climate, potent pin action is possible off of any of these data.

I'll check in when I can, and until then, good luck trading.

best

dk

The dk Report Charts

Correction Looks to Extend

The current correction has tightened its grip on equities once more, and further near-term downside appears likely. Season risk to taste.

It's worth noting that -- for all the gloomy commentary -- various intermediate indicators still remain positive, and the NASDAQ is outperforming the more financial- and manufacturing-rich NYSE indexes. How long this lasts is another thing altogether, as the market has resumed its hyper-sensitivity towards negative news.

In lieu of a more detailed post, The dk Report Charts have been updated. I'll write again when I can, and until then the charts will stay current.

Good luck trading.

dk










As as odd as it may seem, some are surprised at $4 gasoline.

New Lease on Life

There's nothing quite as bullish as a market that keeps going up -- except for one that keeps going up against an onslaught of terrible economic news.

Just 14 sessions after starting a correction, the NASDAQ printed a new, six-month closing high. In fact, the NASDAQ hasn't closed this high since the second trading day of 2008. Thursday's close extends the March rally to a 12th week, and gives it a fresh set of downs. While it doesn't make much sense now, for some reason investors are looking across the valley to the other side.

The chart below shows that the NASDAQ remains in the uptrend channel begun in March. Even though a gap remains below, the index has room to run, and New Highs are accelerating.







One of the most encouraging signs for the market is its renewed appetite for small-cap stocks. Markets do best when riskier asset classes lead, and leadership in young, small companies is generally a sign of market health. The declining green line in the ratio chart below shows that, for the past 2 years, large cap stocks have predominated.

However, in May the small-cap ratio broke above its 26-month downtrend line, indicating a shift in trend to smaller stocks. This is an encouraging development, and an early sign that a new market cycle is trying to take shape.







The chart below illustrates small-cap strength even further. The MID tagged a new YTD high in May, and the SML did so on Thursday. Large cap stocks lag far behind.







Stocks are under accumulation by institutional investors, and gains can be made by following their footsteps. Watch for stocks that surge on heavy volume, especially those hitting new highs. Breakouts are growing more abundant, another good sign for the market.

Maybe not on Friday, but stocks look ready to eventually move higher. I'll continue to post when I can, but The dk Report Charts have been kept current. Check there for interim commentary.

best

dk