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Tuesday, December 23, 2008

The Bad News Bears Are Back

First of all, i need to apologize forn the lack of updates this morning, I had a lot going on and was totally out of the loop. I didn't even have a chance to scan the news until well after the market opened, and it looks like the news was all bad. The chances of a year end rally are dimishing, and the prospects for early 2009 aren't looking any better. When 4th quarter earnings start coming in, we could easily head for new lows, and I was hoping a year end rally would cushion the blow (and give one hell of a shorting opportunity). Volume, as expected, is getting very low, and will probably stay low until after the 1st of January. Technically, we have not broken our previous low on the SPX, but we are getting dangerously close. Both trend lines have been broken, and we appear to be going sideways, but momentum is starting to build toward the down side.

The Nasdaq is being pushed away by the 50dma and is also starting to reverse momentum. It is still well above it's previous low, but is having a hell of a time getting through the overhead resistance.

The Russell 2000 looks like the most healthy of the indexes, but it fell below the 50dma today and broke the up trend. MACD is starting to flip over, but the down side momentum is not nearly as strong as on the SPX.

Here is the relative performance of the indexes since November 20. Not surprisingly, the Russell is leading, bt the underperformance of the Nasdaq did surprise me and is not a good sign. Since the year began, there has been a very good indicator of the strength of rallies. When the Nasdaq outperforms the NYSE, the rally has legs, and when the NYSE outperforms, it fails. It looks like this rally may stick to that relationship.

Here is the relative performance of the sector ETF's since November 20. For aq short time, energy was leading, but has since fallen back. Consumer discretionary and financials are leading, which as far as I am concerned is not a good sign, as I think the majority of buyers there are covering shorts.

I am a bit pressed for time this afternoon, but will try to have an expanded update tonight.


Anonymous said...

hey there David. Quick question. Why wouldnt strength from financial and consumer discretionary be good. Cant this be a sign of a market bottom. In Sector rotation its usually the financial and cyclicals that start out performing. Or is there something
I'm missing here.
Eddie B

David said...

Hi Eddie,

Actually, the scenario you put forward is quite possible, and we could be carving out a market bottom here. It's just my gut feeling that there is going to be more bad news from financials, and especially from retail, that these are going to be heading down again. The weakness in basic materials and energy is not good because it shows a steep slowdown in demand, coming from economic weakness. However, market bottoms often occur when the news is at it's worst, so I don't count out your scenario.

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