Without Help From This Sector, The Market Is Going Nowhere
This remains one of the most challenging
environments. That is what I have been telling you for the past
several months. The action of the past few days just puts an exclamation
point on things.
Just when the market looked like it had a chance to head for the upper end of
this nauseating trading range, it dumped and dumped badly. The most important
worry of the past couple of days is the SOX. In 2 days, the SOX undid 6 days
of rally. That is not the type of action bulls want to see.
On the negative front, only 40-50% of stocks are in good technical shape. That
is way down from 90% in January. Furthermore, there are more groups in
negative than in positive shape. Just these 2Â facts are the reason why the
market cannot go topside out of this range. In order for that to happen,
things need to improve first. Mutual fund cash is down to 4.4%…this number
marked the top of 2000. It indicates there is not a lot of firepower out there
to moves things much higher. And…you can now add declining margin debt to
the worry signs. Expanding margin debt is a characteristic of bull moves while
contracting debt occurs in bear moves. Lastly and as I said earlier, the SOX
is back to acting like the south end of a northbound mule. The market will go
nowhere without the SOX.
Regardless of these negatives, I would only get REAL worried if the S& P
breaks below 1113 followed by a close below 1960 on the NASDAQ. These are
short-term levels that, if broken, could lead down to the May lows. The DOW
already broke its short-term level of 10,300. To be blunt, I believe a break
of the May lows will take us into a new bear market.
On the positive front — and yes, there are still plenty — advance/decline
figures remain in good shape. Normally, this figure would top out months ahead
of the REAL market top. It’s also a positive that major averages remain above
their 200-day moving averages…though the NASDAQ’s is a stone throw’s away.
It’s also a positive that the NEW HIGH LIST continues to be larger than the
NEW LOW LIST…though that number is contracting. Â
No matter what, this is an environment that refuses to give up much to either
side…bull or bear. Play it close to the vest as possible.
Gary Kaltbaum