It looks like Monday will help determine if the sell off will continue. I did a quick check on some DJIA blue chips and tech stocks, including the high flyers which IMO were leading the latter part of this sentiment driven rally. It look like the high flyers have some significant short term damage to momentum and look like they can continue down. Even though the overall technical picture looks like it can recover, these are momentum stocks that were sentiment driven. A sell off like this will be dificult to recover from in the near future for a stock like this.
The "bellweather" techs like MSFT and INTC doing the best with INTC moving up during the sell off this week. DELL is at support right now which looks to be a retracement line. Looks like it may have more to go. Short term momentum definitely damaged with this one. If sell off continues much further, there will be longer term consequences. This can be said of many of the stocks that I have checked here. IBM despite its sell off looks in good technical condition.
WMT looks like its trend has been broken and has encountered some technical damage now that it is below its 20 day MA, but still is in good technical condition. PG is in much more serious shape and will not be seeing any new highs for a while. GE is at its 50 day MA which is flat and has encountered support there. Any additional selling will incur longer term technical damage. MRK has encountered longer term technical damage since now it is below its 50 day MA and may continue down. AT&T was in downtrend but looks to have bottomed. It broke through and closed above its 20 and 50 after having bounced from its 200. AT&T went up during the market sell off.
So to me it looks like many important stocks are still in good technical condition. What we have experienced so far is the market paring down the overextended stocks, many which were in a very strong uptrend, which will not resume their uptrend anytime in the near future. If we were to have another day like yesterday, this may paint a different picture where there may be significant technical damage as a result. It looks like we have found an interim bottom, but this being Friday and the light volume does not convince me this bottom is good. The market internals were poor today with A/D and new Highs to new Lows down in a significant way. Also I expected a market pullback today which happened this morning but then came into more selling. A quick look at the indices shows that there may be a bounce Monday, but it looks like there may be more selling to go.
All in all, the market is better of than I had expected with many stocks in a recoverable condition. If this is any indication, the worst appears to be the drug stocks and consumer products with the blue chip leader GE on the verge of encountering some longer term technical damage which will have its impact on the market. If the market bottoms at this point, I do not think the momentum will not return in the near future and it is unlikely we will see any new highs soon either.
Any thoughts? I may have missed something here, so I am open to feedback, as usual.
Bob Graham |
