It’s No Surprise

September 12, 2002
Tim Truebenbach

Itâ€™s no
surprise that the market is getting hit. Over the past several weeks,
we have seen numerous distribution days in the major averages. Once this
evidence comes in, thereâ€™s a good chance the market is going to decline.

In addition to the marketâ€™s
distribution, we have seen stocks break through resistance and then fall apart.
Few breakouts, if any, have managed to actually push higher. For these reasons,
the trading
service I post never took the caution light off. Following the distribution
days, I stated that shorting a tiny position in the Qâ€™s (the marketâ€™s
lagging index) may be a good complement to sitting it out on the sidelines.

One of the early breakouts, Doral
Financial
(
DORL |
Quote |
Chart |
News |
PowerRating) has been struggling to push higher ever since
breaking through 40.24. It is taking todayâ€™s decline in the market as an
opportunity to sell-off. This is just one example of poor breakouts.

Despite todayâ€™s decline, the market
still has not broken the lows of the current rally attempt set on Sept. 5. If we
get a follow-through day in one of the major averages before the lows are
violated, a new rally may emerge. Until then, itâ€™s necessary to stay on the
sidelines and preserve capital. Breakouts and bounces are too risky to play
during these times, in relation to the reward that one can expect. It will be
much different when the market is behind us.

Growth-stock newcomer, Eon
Labs
(
ELAB |
Quote |
Chart |
News |
PowerRating) made a choppy breakout on Sept. 9, and is now facing
the tough environment most other stocks have eventually succumbed to. Todayâ€™s
action in ELAB is showing distribution as the stock tries to hold above its
pivot of 19.30.