Why The Market Looks Weak–At Least For Now

July 24, 2003
Dave Landry

Looking to the indices, on Thursday, the Nasdaq gapped open
but found its high quickly and began to drift and chop sideways. Then, late in
the day, it sold off hard.Â

This action has it closing poorly.Â

The S&P also sold off after trading higher.

This action keeps puts it right back to the bottom of its trading
range/50-day moving average.

Looking to the sectors,Â the reversal in the Nasdaq
keeps many area questionable. Telecom and software are two notable areas that
could be topping. Internet is now beginning to look suspect too. One has to
wonder if the reaction to the Ebay
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here. The semis sold off hard and are stalling short of their recent (and
longer-term) highs.

On the downside, those areas that have recently topped such
as the homebuilders, utilities and energy stocks still look poised to continue their rollover.Â

Â So what do we do? During this recent chop, the
market looks good on up days–reversing at support (and looking like it could be
resuming its longer-term uptrend) and bad on down days–testing support (and
looking like it could roll over). So, now that we’ve had a down day, especially
when you consider that the S&P reversed after trading higher, I suppose I’m
back in the rollover camp. Therefore, look for shorting opportunities in those
aforementioned weak sectors. However, no matter what you do, you probably want
to continue to trade at a reduced size until the market can prove that it can go
in the same direction for more than one day.

Looking to potential setups, Pulte Homes
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weak homebuilders (and let’s fact it, who wants to live in a weak home?), looks
poised to continue its rollover out of a pullback/big picture inverted cup and
handle.