These Charts Tell A Story…

I know. I know. I know.
The DOW is only 80 points from its yearly high. The S&P 500 is only 16 points
from its yearly high. The NYSE Composite is AT its yearly highs. BUT…I think
you best look underneath the hood because I do not believe major market
averages are as important as what is happening in specific sectors.

OIL stocks have been moving in a parabolic
fashion. Methinks the market is getting used to OIL prices staying above $40.

STEEL, COAL, ORES and other COMMODITIES remain
in fine shape. These areas are extended to the max. I suspect a pullback is
coming soon. Any pullback is buyable. Before I get into my worries, keep in
mind, there are still plenty of groups are in good shape…BUT…they have had
a decent run already. This includes GAMING, HOUSING, HMOs and others. 

BUT…I am starting to find a few things that
could signify some trouble ahead.

On Friday, the DOW was up 30 points but decliners
led advancers 2-1. This has happened on more than one occasion this year. Let
me be clear. The market will not hold up if it gets more days like Friday.

FINANCIALS are topping out. Thos who know me know
how much emphasis I put on FINANCIALS acting well. Markets usually don’t do
well when FINANCIALS do poorly.

^next^The XLF breaks the 50 day on volume.

REGIONAL BANKS are croaking.

BROKERS, up to now, have been strong. I believe
they may have topped last week.

REITS have topped.

FNM, FRE, SLM are doing the bungee jump.

MORTGAGE-related stocks are dumping.

Are you getting the hint?

INTEREST-rate sensitive areas are topping
here…which means you should expect rates to finally start backing up.

Lastly, the NASDAQ and even more, the NASDAQ 100
continue to lag. They have been wedging up from their lows. I believe that if
the market does start to correct,  these areas are going to lead the market
down. That means you also underweight most TECH, BIOTECH, INTERNET and
WIRELESS. The one area of TECH that is acting better is the SEMIS. I suggest
the SEMIS best continue to outperform or the NASDAQ will be in further
trouble.

Gary Kaltbaum