The Market Sings Us To Sleep…After The Lovin’

The
Nasdaq Composite put in a performance today
that possessed all the
creativity, thunder, and magnificence of a Jennifer Lopez performance.  In
other words, I would have rather stayed in bed.  With the Nasdaq spending
most of the day trying to find its footing, the real story emerged late in the
trading session within the Dow Jones Industrials.  With the Dow picking up
a nice tailwind late in the day, it managed to rally nearly 120 points off its
lows and close the day just a biscuit under the 11,000 level. 

In light of the frightening NAPM number reported this morning, the wide layoffs
expected from General Electric, and the 20,000 employees jobs eliminated by DaimlerChrysler earlier this week, all three indices again managed
to view the economic cup as being “half full” and close the day in positive territory.

Probably the most impressive performers the past two months have been the
brokerage stocks.  Today, Goldman Sachs finished up $4.45, Merrill Lynch
added $3.50, Lehman Brothers up $1.32, and Morgan Stanley Dean Witter tacked on
5.90%, or $5.00.  Incredible performances from a group that has essentially
defied gravity for the past two months, even in the face of downgrades and
public calls from analysts to “take profits after the huge runups.” 

Let’s take a look at a few of the major players in this group and see if their
technicals are confirming their price action.

Let’s look at a weekly chart of Goldman Sachs first:

As we can see from the
chart above, Goldman Sachs may be in the midst of forming a major head-and-shoulders formation on the weekly chart.  Judging by the fact its MACD is
displaying a significant negative divergence with price action, my gut feel is
we are nearing an intermediate-term top.

Let’s look now to another brokerage stock that has been on a tear, Lehman
Brothers.

Lehman Brothers, as well,
is displaying negative divergences between its MACD, Momentum indicator and
price action.

I am watching both of these formations for short entries which may provide
excellent swing opportunities.

Long Watch: The Nasdaq is displaying
absolutely no leadership in any sector. Play the hot sector or stock du jour. 
Mixed results in all sectors as some biotechs are up while others are down,
ditto in the semiconductors and fiber optics groups.

Short Watch:  Banks, brokers will break
soon.  The big boys are making those who played the “sell the
news” scenario sweat a little and get squeezed out of their shorts before
they take them down. Get ready for the entries.  As these two groups ran up
the most in anticipation of the FOMC rate cut, the amateurs sold them hard
yesterday, only to see them reverse in their collective faces today.  They
appear to be forming a top here but may require another few days before we get
our entries.

Psychologically prepare yourself for multiple days of “base hits” here
as the market continues to look for direction.  Not a time to swing for the
fences and anticipate.

Do well tomorrow.

Goran