A break of these levels will lead to lower prices
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Well, we warned you in our last report that just about every
big gap to the upside has been sold off over the past couple of years. Friday’s
action was no different.
The market found a spot on Friday where sellers said “fuggedaboutit”. We have
taught you throughout the years that these types of negative reversals end moves
to the upside and lead to downside testing. Due to the fact that all the major
indices aborted at or near important resistance levels, we think you should give
the reversal some respect.
The Fed did its yapping…but for us, it is NOT THE NEWS, IT’S HOW THE MARKET
REACTS TO THE NEWS. Firstly, we believe it is cause for concern that on the
recent move up, volume never confirmed the move. History shows that volume needs
to be part of the equation on any move up…and so far, nothing doing. In
addition, while the “market” has been moving up the past couple of weeks, we
continued to see a ton of stocks blowing up…including some past leaders of the
last bull cycle. This is not the type of action normally seen if we are at the
start of a new bull. In addition, while the DOW and S&P did best on the move,
SMALL-CAP, MID-CAP and the like continued to under perform. What did we tell you
at the top? In bear phases, money runs from riskier areas into the larger-cap
areas…because of their liquidity. So far, this is exactly what is happening
and is not a positive like some believe.
Other less-than-thrilling thoughts:
The TRANSPORTS continue to act horrid. We believe this is important because they
were leaders in the prior cycle. The TRANSPORTS were actually down during the
latest rally.
The NASDAQ/NDX/SOX continue to lag badly. All remain below moving averages and
except for fleeting bounces, nothing good is going on. Once again, we believe
these are the areas that lead both up and down.
DEFENSIVE issues continue to outperform…and in classic fashion. These are the
areas we told you would lead in a tougher market. They include DRUGS, DRUG
STORES, misc. HEALTHCARE, TOBACCO, FOOD, BEVERAGES, BIG FINANCIALS, UTILITIES
and REITS. We are actually amazed REITS continue to outperform while HOUSING
stocks have been trashed.
Friday’s reversal and Tuesday’s action off the Fed is a cause for concern. We
are watching certain short-term support levels …Dow 11,080…S&P 1262 and
NASDAQ 2052. A break below will lead to more downside testing.
Longer term, we alert you to these vital levels…that if taken out, you may
stick the fork in the market as another leg down…and possibly a nasty
leg…will ensue. Start with the Dow at approximately 10,680…a place that has
held for quite a while…S&P 1219…NASDAQ 2012…and add in the Russell 2000 at
670.
Lastly, we must tell you that waiting for the Fed was like watching Trading
Places when they waited for the Orange Juice report….just ridiculous.
So….the Fed stops raising rates. They say additional firming depends on
outlook. They say growth has moderated because of higher energy prices, higher
rates and a slowdown in housing. They say inflation expectations are contained.
In other words, we will do things when we find things out. The world is
listening and hanging on to people that are nothing more than trend followers.
We thought the Fed was supposed to be in front of things. Let us be clear. The
market action we are seeing right now tells us that the FED, once again, went
too far.