Here is a repost of my comments from today, in the Supertraders.com newsletter.
The major indices are not "broken" but the violations of the shorter term trendlines in the S and P, Dow and Nasdaq were a sign of, at a minimum, a short term top, which is why I made the caution comments last week. An additional cause for concern as mentioned last week was the trendline break in the $BTK, the biotech index. The bleeding continued in the bios again on Monday, and the selling has been about as fierce as any I can remember in a long time for a sector which really hasn't had much in the way of bad news. Also on Monday, the SMH broke its' trendline. The nasdaq is going to have a rough time, without, at a minimum, either chips or bios cooperating. The RUT broke its' trendline today, but just barely. The IIX internet index bounced off its' trendline today, a good sign, as that has been the best sector in the nasdaq. I see trendline support for the Dow at 8900, for the NDX at 1180 and for the S and P at 975. A violation of those #s would be a big negative, because those are the trendlines which mark the start of the rallies in March. If you don't think trendlines matter, take a look at what happened to KVHI today. GORX was a trendline reversal to the upside and you can see how that worked as well.
You will read commentators saying that because vol was light today, it is bullish. However, from my persepctive, you lose the same amount of money when a stock goes down on light volume as when it retreats on heavy volume. The light volume to me is merely a sign that the selling isn't very intense, and leads me to believe that a bounce is due soon. With window dressing likely at end of quarter, I would expect a bounce. How far the market can go is the million dollar question. I do not believe it can take out recent highs without some good news on the economy or some good earnings from leadership stocks with guidance being raised. However, you can never underestimate the power of the herd, especially when it comes to funds that need to perform. |
