NASDAQ Takes a Hit

We have suggested that you sell into strength for the last couple of weeks but you didn’t get much chance to do that today as the stock market started off with a little gain but basically leaked all day and went out on the lows.  This is a Monday in front of a two week holiday period which many have thought would produce a nice rally going into year end.  Today’s action doesn’t help that argument at all.

Don’t be deceived by the 39 point loss in the Dow.  That was mitigated by the outsized gains of the two drug stocks in the Dow, Pfizer (PFE) and Merck (MRK), based on a patent victory (Lipitor) by Pfizer.  I guess Barron’s ran a story over the weekend about AIG saying the worst of the scandals and executive reshuffling are behind them and the price may come back and it did today to the tune of about one percent.  (Our position is that AIG has seen its highs for a while.)  Without those gains the Dow would have been down about 40 more points.  The losses today came even though oil dropped into the $57’s.

The big move was on the NASDAQ as that index fell almost 1.5%, showing surprising weakness for a Monday.  We are not unhappy about this move but we weren’t expecting such a big drop on a Monday.  The move was significant because it pulled the average down below lows set a week and a half ago and the lows set at the end of last month.  

What is more ominous is the drop in prices without any real news to cause it.  We would not be surprised to see the market continue to drop from here.  All it has needed in the last two weeks is a start to the downside and it will go down.  The participants are So bullish and are not prepared for a large drop, a pull back maybe but not a large drop.    

Tuesday we get to see the PPI and housing starts before the market opens.  We’ll see how those pieces of news affect the market.  We don’t think they will have much effect but there is always a chance the market will try to pay attention to them.  

Markets don’t tend to fall right out of bed and we understand that the market has every right to retrace some of Monday’s fall but we think that the market has now tipped its hand for the next move—down.  Be careful and be selling rallies.

Dow Industrials:  10,836.53  -39.06
RYVNX:  19.27
TLT:  90.79
BEGBX:  13.42