Here’s What Monday’s Action Tells You
For
the past couple of weeks, I have been telling you that market
leadership has been changing. While the NYSE types were now getting money flows,
many leading stocks had topped. I also told you to beware of SCHOOLS, RETAILERS
and SEMICONDUCTORS as these groups, I believe, had also topped.
Nothing I have seen has
changed that stance. In fact, Monday’s action only confirms my thoughts. In
particular, the Nasdaq has put in an intermediate-term top…led to the downside
by the SEMICONDUCTORS.
This past weekend, I appeared on FOX NEWS CHANNEL. I simply stated that the
Nasdaq was in the midst of a correction unlike we have seen since last March.
I went on to say that I expected at least a 10%-15% drop. Everyone disagreed.
I then received lots of ugly emails. These emails basically told my I was nuts
and should get a new job. (That was the nice email.) Imagine that. It was blasphemy
to think the market could correct.
That takes us to Monday’s action.
I have taught you in the past to be careful about buying positive events. Yes,
it was great that Saddam was caught…but it was another classic “sell
the news” scenario. Monday’s action was an ugly negative-reversal day.
There is no way else to spin it. This action tells you the market is tired at
these levels and the Nasdaq is in trouble. The market had every chance to stay
up and couldn’t. Advance/decline figures turned horrid throughout the day. So…I
dont believe anything has changed.
I would continue to completely underweight SEMIS, DISK DRIVES, RETAILERS, SCHOOLS
and other areas that have topped out. The SOX closed below the important 494
level I told you about as well as its 50 day average.
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Many names in the group
now have very ominous patterns. The Nasdaq also finished below its 50-day average.
A break below 1878 will complete the top I have been talking about and then
have us talking about lower support levels. Most everything else put in “tails”
on Monday also.
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I am still finding plenty of good charts in the low beta, NYSE-types in a host
of CYCLICAL sectors like AUTOS, MACHINERY, CONSTRUCTION EQUIPMENT and other
INDUSTRIALS. I am not too sure these areas can lead for too long of a time.
We shall play it as it comes.
Gary Kaltbaum