Monday, March 10, 2008

Charts to Watch

For the month of February, pretty much the only way to make money in the market has been to own steel, metal, mining, energy, and agriculture stocks. If you were heavily invested in these areas, I would imagine you were pretty happy entering the month of March. They were the clear leaders of this market - pretty much the only leaders that were out there.

IBD pointed something out in today's Big Picture that was very easy to see after doing my scans tonight.

"When a market correction accelerates, no stock is safe. Sellers might target one or two leading groups but leave others alone. But if a weak market persists, it's only a matter of time before all the leaders get picked off. Coming off big gains, those leaders will often flash rapid, nasty price drops."

I think the past few days were the beginning of the end for this last group of leading stocks for this market. If you look at the charts below, it is pretty evident that most of these stocks are now in the process of topping out, and are headed for much lower prices. I have seen negative divergences in many of these charts since the beginning of the year, and I think those divergences are finally playing themselves out. I don't know if the coffins are nailed completely shut yet, but the hammer is out and a few nails have been put in the past two days. The only sectors that are still holding up somewhat are the oils, and I see a lot of distribution in these areas as well. I will be looking to add shorts in this area on any bounces, and will also be looking to add to my SMN inverse ETF position on any weakness. I also continue to monitor DUG, the inverse oil ETF for a safe entry. I think these stocks have a long way to fall.


MTLAKS
CNX
POTMOS
CF

Here's an IBD type stock that was downgraded today. Ouch.

SMTS
Although I don't think it is very safe to short right here, this stock looks like it is beginning to break down as well, just like its group member FWLT did last week.

MDR
Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

What does this all mean? Well, I will probably be wrong, but I think it is very possible we have much more downside here than I even thought. If these hot sectors start falling as well, and it sure looks like they are, what exactly is there to keep this market from falling further? What areas are the sellers going to step into and buy? Financials? I know I won't be touching them, not with a seemingly endless amount of bad news coming out each day. Tech? The Nasdaq has been leading us lower this entire bear market. The next few days look like they will be quite interesting. Will more weakness bring an early rate cut? How will the market respond if we get one? Will we bounce even without one, or since everyone is expecting a bounce, will we instead just continue lower? Good luck, and be careful.

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