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Monday, July 11, 2011

The Contagion Spreads

 All you can say when looking at today's chart is "wow". Today's drop was almost identical to the one we had in early June, which nearly sent us directly into the teeth of a bear market. Volume was relatively low, which kept this from being a rout. The 50dma was pierced but did not break, so that may be a positive sign, but this market has lost any upward momentum it had and is now sure looking like it is in trouble. The Euro had a dive today on the bad news in Europe, but is getting a bounce in the overnight session. If that keeps up we should get a bounce in the market tomorrow, but that will most likely be a selling opportunity.  Europe is starting to look like it is TBTB (too big to bail), which should not come as a surprise to anyone. 

At least the candle looks a little smaller on the Nasdaq, although the percentage drop was actually bigger. Relative volume also looks a little higher, but price relative dropped less in comparison and is still in an uptrend.

The price relative line has broken out to a new high on the Dow industrials. I hate to belabor the point, but when the price relative on the Dow is rising, that usually means trouble for the market as a whole.

A also hate to belabor the point that I don't like using ETFs as proxies for indexes, but since this is the only way to get an idea of volume on the Russell 2000 I'm stuck with it. this has had a very dramatic rise in CMF, which can easily lead to an overbought condition, but again, with an ETF I am less confident about making that assertion. The price relative line is turning down just short of the previous high. What is odd is that over the past few months, this really has not either outperformed or underperformed the SPX, and price-wise, neither has changed that much despite a very wide trading range.

Just when I though my bearish prognostications last week were about to be thrown into the ashcan of history, they have been given new life, thanks to what we have known for quite some time: the situation in Europe is possibly beyond repair, while the situation here at home is not a whole lot better.

I will have the new highs update shortly. . 

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