Watch This Important Index Closely
In our report on Friday
morning, we told you we thought a trading top had been put…and
that there was a decent chance an important top was put in. Well, Friday’s
action action did nothing to dissuade our thoughts..Â
After acting well for weeks, Thursday’s action
changed the complexion of the market. You may ask how one day can change
things. It is simple. That day, the NASDAQ and the SOX were breaking out but
the S&P, DOW, NDX and the woeful TRANSPORTS refused to confirm the move,
thus leading to a negative divergence. On top of that, the NASDAQ and the
SOX failed miserably on the “noisy” breakout. We have taught you throughout
the years that these types of important negative reversals almost always
lead to further downside testing…which is exactly what happened. Also on
Thursday, the rest of the market was acting horrid as a long list of
CYCLICALS, which were trying to bottom, started to gag badly. Once we
started to see the rest of the market start to fall apart, we knew the
recent move up was over. Friday’s action only confirmed our thesis.
The TRANSPORTS are acting horrid. They have been
a very good harbinger for things to come. thus, we must watch closely. For
starters, we would continue to stay as far away from this area as possible
right now…and if the TRANSPORTS break below 3335, then a MAJOR TOP would
be in place.
The DOW has now broke below all major moving
averages. The DOW has also been a major laggard. A break below 10,000 will
confirm the TRANSPORTS and will also confirm a MAJOR TOP for the DOW.Â
The S&P has been stronger than the DOW for
months. It is sitting on support right about here at 1191. A break below
this level will only add to the negatives we are already seeing.
The NASDAQ has now broke near-term support at
2052. Keep in mind, the NDX is much weaker than the NASDAQ. Just recognize
the NASDAQ can right itself quickly if it wanted to.
The SOX now sits at support at 420. WATCH THIS
IMPORTANT INDEX CLOSELY.
We believe this recent action came about
because sentiment became too complacent and frothy. We mentioned this in
last Monday’s report. At that time, we thought any pullback would be
controlled but Thursday’s action quickly changed our thoughts. Those
sentiment readings are still too complacent but we gather a little more
action like Thursday and Friday, and some of the smiles will get wiped off
the bulls faces. The VIX and the VXNÂ continue to be ridiculously low, the
bull/bear percentage is clearly bullish…which is bearish and the bullish
noise out of certain pundit’s mouths became over the top bullish. Need we
say more.Â
That said, the world has not ended. There are
still plenty of good looking stocks and sectors. They include RETAIL and
OILS. We just want to make sure you recognize that the market has teased the
downside as well as the upside for many months…and would not rule out
anything until major indices breach longer-term support. We are hearing too
many perma-bears already coming out of hibernation…after a couple of down
days. Short-term action could be tricky this week as we get end of quarter
mark-ups as well as the July 4th holiday. It would be quite normal to bounce
here with the markets near-term oversold.
We think it is also bullish that WORLD MARKETS haven’t
flinched. Europe’s markets continue to act just fine.
No matter what–and as we have
been seeing for 18 months–this game is going to remain a very tough game.
Gary Kaltbaum