If There’s One Sign To Look For, This Is It
I
have a few comments but will hold them until after I quote someone
else, as well as ask you to read someone else’s interview. First, I quote a
portion of IBD‘s “Big Picture” section from today. I couldn’t
say things any better.
“The bigger
picture still looks questionable. As noted in the Market Pulse… the Nasdaq
and S&P 500 have logged four higher-volume drops in the last 3 1/2 weeks.
That kind of distribution often spells trouble for stocks.
You needn’t play fortuneteller to predict what stocks might do, though.
The pipeline of leading stocks breaking out of well-formed bases has slowed
to a trickle. Many of those that have tried to break out have quickly dived
back into their bases. Meanwhile, many stocks that had racked up decent gains
have started coming down in heavy volume.
Put those factors together, and you should automatically be easing off the throttle,
assuming you’re following a set of sound trading rules. By now the flow of the
market should have taken you off margin,away from new buys, and closer to cash.
Historically, three out of four stocks follow the trend of the broad market.
If a correction takes hold, those would be long odds to overcome.
For the skies to clear, you’d want to see a string of up days for the major
indexes on higher volume. Also, look for top stocks to form sound bases, then
hold and build on their gains.”
There you have it. Secondly, I urge you to get this weekend’s Barrons
and go to page 34 of the main section. It is an interview with a very smart
technician…and frankly, I think he is right on the money with all his thoughts.
I would post the interview up in a place you can get your hands on.
Now for me and my random thoughts.
I told you 2-3 weeks ago that things were going to get choppy and much much
tougher. I saw several things at that time.
It became too easy to make money on the long side. When things get too easy,
it almost always means you are getting close to some trouble. I then started
to see a lot of leading names stop going up…then gag. I saw higher-volume
down days on the market and fewer and fewer names participating on the up days,
indicating simply: The market was losing momentum.
So far, the trouble has
been mostly limited to the Nasdaq
(
$COMPQ.X |
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PowerRating) I do believe there is a chance the 2153 on the Nasdaq could
be the top for this cycle…but of course, we will just play it day to day.
I just think there are enough important Nasdaq names that seem toast.
Since the Nasdaq led the
market up…the question remains, if the Nasdaq does break down even more, will
it lead the rest of the market down? I would say odds favor it. The Dow
(
$INDU.X |
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500
(
$SPX.X |
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PowerRating)…so far, have hardly budged. In fact, until
Thursday’s reversal to the downside, we were at cycle highs.
So…what from here? Go
slow. We reversed down Thursday and almost reversed up Friday. The moves
are nauseating and need to be played lightly. The big negative I am seeing is
that even though the market went positive late Friday before turning lower,
ADVANCE/DECLINES and UP/DOWN VOLUME remained horrid. If there is any one sign
the market is in trouble, it will be the deterioration on a daily basis in those
areas. I will be watching them closely to tell me where the “market”
is headed.
The reason for this is
that the complexion of the market has changed and no longer are you bailed out
of mistakes. I found a ton of leading names and failed breakouts in the past
few days.
I keep being asked about Gold.
Forget Gold for now. It is in an
intermediate correction. I am going neither long nor short…though a few
names look tempting to short.
I told you approximately
2-3 weeks ago that the Dollar
was bottoming. I was 75% sure at the time. I am now 100% sure…and do you know
when the dollar bottomed? The same day a reporter for the WSJ wrote
an article “How To Play The Falling Dollar.” Of course, that came
out after the drop. Now, we are getting
front covers of magazines entitled “10 Tech Trends
To Bet On” and “Tech Is Back.” Do
I hear a top?
The number of stocks hitting
NEW HIGHS is still contracting. On December 29, 2003, the number of new highs
on the NYSE was 632. When the Dow hit new highs this past week, the number was
down to 226...A glaring divergence.
The Nasdaq is doing the same. This means fewer and fewer stocks are carrying
the weight, which almost always leads to a correction.
Gary Kaltbaum