Key Reversal Day

Where do we begin?  The stock market pushed to higher ground on Tuesday morning and hit a wall when the NASDAQ Comp got to that intra-day January high around 2333.  We have been commenting on the closing high near 2331 but the real high is the intra-day.  Today’s high bested that January high by 3 cents before hitting a solid brick wall.  

After that, the market came in quite a bit.  The Comp traded at 2332.95 mid-morning and closed at 2294.23 for nearly a full 40 points move.  By the end of the day the market sported a key reversal by going to a new high in the morning and reversing into the close.  We have another description for that and it is called an outside down day, very bearish trading pattern.  The only thing that was unsatisfying about it was that volume was not very robust so the price moves are not as powerful either, although NASDAQ volume was a little stronger than the NYSE.  But, we did see the highs hold and the reversal unfold.

The PPI (Producer Price Index) fell so hard that there was a mad scramble to focus on the core numbers which the market (and the Fed) wants to do, because that’s what it’s trained to do.  It’s like magic, don’t look over here, look in my other hand.  The PPI was down 1.4% in February for the fastest drop in nearly three years, but not to worry, the core rate was nicely positive at 0.3%, whew.  For a while there, we might have had to face the deflation story, we couldn’t do that, oh no.  

Seriously, the deflation story is going to become large over the course of the next year as both the stock market and the real estate market go down.  We have no reason to discuss this topic at length tonight but the story is getting more difficult to ignore as time goes on.  We are anxiously awaiting the housing numbers that are coming out later in the week.

One of the market drivers for Tuesday was the President’s speech in the morning declaring that the state of the economy and the Iraq war are good.  This propelled the market up a bit this morning and then there was nothing else to hold it up into the afternoon.  The ORCL news and the words of the new Fed head didn’t seem to move the market all that much.

For Tuesday the news is the last thing that is important, what we need to focus on is the important reversal at a critical point.  Our momentum indicators show the market to be overbought but the momentum is fairly weak.  On Tuesday, we saw a major reversal right at the right time and this is important.  

Then after the bell, the market was hit with more news, this time from MSFT (Microsoft) delaying the release of their new Windows Vista operating system.  The NASDAQ after hours market was troubled by this news and fell quite a bit.  Of course, it is overnight trading and the real trading doesn’t begin until Wednesday morning…stay tuned and…

Be careful out there…

Dow Industrials:  11,235.47  -39.06
RYVNX:   18.92
RYAIX:  22.17
TLT:  88.56
BEGBX:  13.02