I Still Think We’re Going Down…Here’s Why
In my last few reports, I told you that the markets were getting
overbought and extended. I also told you that I was worried about excessive
bullishness and rampant speculation just seven weeks off of a six-year low.
Well, Monday’s reversal started the market into pullback mode. Herein lies the
first part of last week’s lesson.
On Monday, the market had a monstrous gap to the upside on “better” retail news.
But while everyone was celebrating, the markets turned south right at the open
and never looked back. In other words, while the doughnutheads were telling you
that it was time to buy, the technicals were saying otherwise. Just remember,
the market is in no mood to accommodate the masses. When everyone tipped
bullish, it goes the other way. Negative reversals almost always lead to
downside testing…which is exactly what happened into Friday morning.
Friday morning did not start out too well. Unemployment figures had the market
gapping…but this time to the downside. But the market had other things in
mind. It reversed to the upside on the bad news. Moral of the story:
IT’S NOT THE NEWS, IT’S HOW THE MARKET REACTS TO THE NEWS.
A few notes.
Friday’s reversal
occurred on very light volume. I would have rather seen a reversal on heavier
volume. Heavy volume reversals work much better because it cleans out all the
sellers. But…I never argue with reversals…so the short-term correction
could be over.
The reversal happened
because the leading TECH,
TELCOS, INTERNET
and BIOTECHS pulled back into an area of
support. While I am starting to see a few names break down in these areas,
most are holding up.
The intermediate-term
rally is starting to act a little sloppy, but I am still not willing to call
it the end of the rally. I would now be watching the SOX like a hawk. As I
have said, it is leading the market on a leash. Since it is much easier to
gauge a market by the way it rallies, I will be paying particular attention to
any bounce the SOX and the market may have from here.
All of the longer-term
negatives I have talked about previously…remain…
All major indices are
still trading below their 200-day averages.
I continue to find
more groups in poor technical shape than in good technical shape.
51.1%Â bullish
advisors.
World markets remain
in lockstep.
Lastly, this tape
remains split. While sectors mentioned earlier continue to act well, many
sectors continue to lag. Do not treat what’s going on as a “buy the market” or
“short the market” game. This is a sector-by-sector, stock-by-stock equation
right now…and it is not very easy.