Yesterday I was as bearish if not more than you are. However I took a break and then re looked my charts over. I have a new scenario, still bearish but milder on the surface.
Weeks ago I noticed the AMEX and RUT weren't supporting the DJI, NAS, SPX and OEX run up. Last week, many mid cap stocks were sliding back and most of the small caps I watch were also. When I really started looking, I noticed the same decaying chart patterns on numerous stocks but all at different stages of decline. The last two days last week were obviously the worst yet The stocks that prop up the indexes (IBM, DELL, MSFT, CSCO etc) were all modestly up and forming flag patterns on the charts. I have been snooping around and I came up with this repeat scenario.
Before the last drop we noticed that the big boys were heavy sellers despite the indexes not showing it. They are doing it again. They are shifting money around to only the largest index supporting stocks while they are selling off those that contribute less to the weighting of their respective index. I ran all the heaviest weighted stocks and with the exception of the ones that recently warned like KO, PG etc. All were flagged, yet most of the others were down significantly from their tops, many in the later stages as much as 50% retracement from their rallies.
IMO they are going to cash without alarming the average Joe. The only exception I did see was the telecom sector but this is mostly due to various news events. LU, CSCO and FLEX are all up. CSCO is a heavy weight, LU is LU, and FLEX has a split coming and issued more shares so it is being propped up I'm sure.
The big billion dollar question is what will be done with the cash? Will it rotate back in after the earnings warning season is over to push us up further in a few weeks or will they pull the plug on the heavy weights when they are done distributing the rest of their stock and go short the indexes as the bottom falls out. As bearish as I was and staring at that H&S on the DOW, the double top on the SPX etc, I tend to think we may dip short term (2 weeks) then they will push us up further and pull the plug later. As someone else said, it is un-american to crash on X-mas. I think there will be one more rally down the road but it will be hollow like July.
Regardless, there is definite distribution behind the scenes that is larger than first glance. Also note while no one was looking, Japan is back to within one bad day of dipping below 14K, HK is below 10K again and Korea could bust 500 in a week or two. Brazil has been getting slaughtered recently also. It is amazing how little we pay attention when our market is going up <g>
JMHO
Lee |
