Recap of Previous Blog
While I predicted the market will sneak a quick bounce benefiting no one, it did just that on Tuesday. Bob Pisani over at the CNBC’s NYSE post tried to put a positive spin on the lackluster week at the closing bell Friday stating that DJIA ended the week slightly positive. But the NAZ was down 17.42, and S&P 500 down 0.42. Big deal you said, but instead of Krispy-Krem’ing the week, I am going to call it as it is -- a FLAT week.
I know I am suppose to accentuate the positives, but it’s hard to pull an Allen Greenspan: lying to the public that this wide spread economic slow down is only a "soft patch," and insisted the economy would pick up where it left off soon; thus, he must stay hawkish to fight the inflation with higher interest rates. If you believe the Al-Green rhetoric, then I have the Golden Gate Bridge to sell to you for only $500.
Technical Analysis
All my “big picture” charts are acting as if they are warm-up for a massive leg down (crash) in the near future. Every one of them are now far below the 200MA. Further more, most of the charts are showing flat 200MA, and some heading down. Everyone except for Trannie (DJTA) of course. It is resting just above the 200MA. For bull’s sake, it’s critical that Trannie stay above 200MA next week. If it relents and confirms the weakness with the rest, anything could happen. And don't blame me for not warning you. I don’t think a big one-day drop (over 10%) is in the bear’s playbook, but a never-ending sinking feeling is what the bears have in mind for those who long the market and had pickup a few heavy weights during the last down leg -- warning with the “catching a falling knife” analogy. Another weakness in these charts is that everyone of them, except Trannie of course, is now below the major support line formed by the secular bull trend line back in March 2003. It 'may' mean the secular bull is over. But I’ll hold that prediction back until Trannie joins the rest of its peer.
Addition to reading the pulse of the big indices, I’ve also started to read each major sector with iShare.
Technology related iShares are the weakest and maybe on the verge of bottoming out, as most of them are approaching the major support lines of late 2002 and early 2003. By the way, all of the charts that I am reading have falling so far behind that I have to look back 3 years of history to find the support/resisting lines. That is another negative pulse of the market overall. Three iShares (Network, Semi, Software) caught my attention as they are touching the major 2002 supporting line. Let’s hope a dead-cat bounce instead of a falling knife is in the next act. But with the rest of the market cutting the short term support lines like a warm knife through a butter, I wouldn’t be surprise if these 3 sectors kept their negative momentum, and cut through their 2002 support line. That would be a very bearish setup. Retail (RTH) and Financial (IYG) are holding on to their last lifeline; Utilities (IDU) is looking to break above its resistance and move higher, or hit the ceiling and fall back down; Energy (IYE) is looking okay here, although it’s approaching its intermediate support, and needs to bounce up soon to keep its upward momentum alive.
While everyone in the world plus your mother-in-law are urging you to buy the battered INTC, HP, IBM and the rest of the battered blue chips, I restate that playing the markets at this point is like catching a falling knife -- the chance of catching the blade and bleed is far greater than catching the handle. If people keep insisting that there will be a dead-cat bounce, I’ll point them to last Tuesday’s session as their bounce from the dead and rotting cat.
Technical meltdown in general is not something you should take lightly. Although you shouldn’t rely on technical analysis to dictate your trading strategy, the fundamentals are not looking too bright either. And I will talk about that next week.
I wish the market a better week, technically.
posted by jason @ 5:35 AM
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