Six Reasons Sentiment Still Stinks
I have been calling for a correction recently…but
one of the positives of a bull move is that corrections are controlled and
rotational…and that is exactly what has happened in the past couple of days.
While the leading Nasdaq TECH, INTERNET and
WIRELESS stocks started to pull back…and some
actually broke down, other areas came to the fore to pick up the slack.
Money
flows are now going into DEFENSE, OILS and
CYCLICALS leading to a change of complexion
near-term. I expect more of the same. I now expect…for the first time since
this rally started…for Dow-type stocks to get their share of this rally. The
question is how far and how long…and the answer is…I don’t know.
First,
let’s look at important levels of the major indices.
Dow
support is at 8970 and not coincidentally right at the 50-day average.
Resistance is at 9352.
The
S&P has support at 974 with definable
support at 1015.
The Nasdaq support is at its breakout at 1686. The Nasdaq actually hit
1688 on Friday.
Nasdaq 100 support sits between 1246 and 1256. Resistance for
the Nasdaq and Nasdaq 100 are its recent highs but I do not believe they will be
penetrated any time soon. There are just too many TECH names acting toppy here.
There are some near-term negatives still out there. The NEW HIGH LIST has
contracted in a big way while a loss of momentum can definitely be seen. It is
also a near-term negative that the amount of breakouts is diminishing, leaving
us with a little less to do on the long side. It is time for new bases to be
formed…and in the case of names like Amazon
(
AMZN |
Quote |
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PowerRating) and Yahoo!
(
YHOO |
Quote |
Chart |
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PowerRating)…which
are now breaking moving averages, action should be taken. But don’t get too
bearish yet. As long as major averages hold support, the bulls get the upper
hand.
Sentiment still stinks. I have a large
laundry list.
- Barrons
having two covers with bulls on them. - Articles about it
being fashionable to talk about stocks again. - Speculative froth
in low-priced stocks. - The % of bulls
leading bears by a wide, wide margin. - My father wanting
to buy stocks. - Elaine Garzarelli
appearing on CNBC. In case you didn’t know, she was wildly bullish when the
FED started to lower rates in Jan. 2001. Yes, the broken clock syndrome is
still at hand.
The sentiment list is
mentioned not to throw cold water on this rally. It is to remind you that I
don’t believe bull moves can last forever while everyone expects them to…but
sentiment is a lagging indicator. Price and volume always take precedence.
Gary Kaltbaum