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Thursday, April 18, 2013

Is This For Real?

Some people won't give up on this bull run until the SPX breaks the 50dma, and I can't say I blame them, considering the recent history of the market.  It just so happens that the simple and exponential 50 day averages almost exactly coincide, so neiher one has really been broken yet, at least on a closing basis, and we may be pised for a bounce here,. However, considering the volume, and the prior distribution day count, I would consider this rally cooked, and even if we don;t go down any further, will treat any move up as a bounce until proven otherwise (with an O'Neil follow through day).

One reason is that he Nasdaq 100, a significant driver of the market, has decisively broken the 50dma. It did hold a support level at the prior low, and should that fail, we have the February low below that, but this really tookk a significant hit today, and any rally attempt will have not only short sellers to contend with, but scared out of their wits bulls, as well.

The Russell 2000 has repeatedly failed t find support, which is a bad omen for the rest of the market, and has only the February low between it and the 200dema. I don't like it;s chances of finding support any time soon. This will probably be the determining factor in what the rest of the market will do near term.

The percentage of stocks on the NYSE above the 50dma has been telling us all along what was going to happen, just not when. It took longer than normal, but it ultimately dropped onto bear territory
, and is now headed for 35. Once it gets below that, it should (as it has n the past) drop quickly into the teens, at which point it will reverse and we should start a new rally. Once it gets below 35, I will start looking to load up on long positions.

The same indicator on the Nasdaq, which is closer to it's critical level (which is 30), so it should cross first. Since the damage on the Nasdaq is probably much more severe, I would expect fewer likely long positions there, but I don;t know that for sure: we should find out within a few weeks.

I think we can safely say the market is now in the correction that it has been warning about for over two months. While the last few pullbacks were serious disappointments, this one looks like the real thing. 

I will have the new highs update shortly.

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