Wednesday, January 2, 2008

State of the Market - 1/2/2008

The market had a rough start to the 2008 trading year as all indexes were down anywhere from 1.2% to 1.6% on heavier volume, giving all indexes another distribution day. That now puts the count at six distribution days for the Nasdaq and five for the Dow and S&P. I would not be surprised if IBD changed their outlook to "rally under pressure" or even "market in correction" after today. Strength in commodity stocks (oils and metals) likely kept the market from having a worse day as crude oil jumped above $100 intraday and gold went higher today as well. The markets spiked briefly intraday when the Fed minutes were released, but the markets then continued their selloff and closed near their lows. The market monitor continues to be in bearish territory.

Some charts of the indexes are below - several suffered technical damage today and look to get weaker from here.

Dow

S&P 500
Nasdaq
Russell 2000
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.


I am not posting any individual stock charts because I don't see any good opportunities on the long or short sides right now. The time to short was several days ago in my opinion - I think if start short positions here, you are putting yourself at risk for getting whipsawed. Most of the strong stocks I mentioned yesterday held up well today without major down days even with the market weakness. Of course, the solars continued to be strong, and there were a lot of oil and metal stocks with breakouts today. Unfortunately, none of these breakouts excite me at all - I see a lot of negative divergences on them and the BOP (a Telechart indicator) are mainly yellow, not the green that tells you that it is a really strong stock. So it looks like we are in no-man's land for the time being - after adding to a short or two, I will be simply managing my current positions and not taking any new ones.

I'd like to say that we will continue lower tomorrow, but I have absolutely no clue what to expect. The past few months have taught me to expect absolutely nothing from this market. It is too spastic and hasn't made any logical sense. Everytime it looks like we will finally start the downtrend in earnest, it seems like the market gathers itself one more time and has another anemic, low volume bounce back up to some point of resistance. There were some breakdowns that I saw today, but not as many major ones as I have seen on other big down days. Since there was not as much heavy, panic-type selling, perhaps we will have some slower, methodical selling here and this is a start of a legitimate correction instead of this chop. It might seem weird to hope for a correction, but we need one to build some nice charts instead of the crap I see out there now. IBD commented in their year-end review issue that this bull market is going on its fifth year, which is old historically. Corrections are necessary evils in the market cycle. A meaningful correction might not seem like a good thing, but the quicker it happens, the quicker we can start another nice, significant uptrend, which is obviously a much better environment to make money in than the one we have currently. Good luck!

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