Thursday, January 18, 2007

Bears Win...Day Two

Market Action:
The news from AAPL on Wednesday evening gave a little push to the market, a little push over the cliff, that is.  The Dow was up at the bell trying to go above the new high set on Wednesday but before it did there was something that yanked that moment away and dropped the Dow by about 60 points in 15 minutes.  We say “something” because we’re not sure what it was, just that all of a sudden the bottom fell out and the market dropped hard for 15 minutes.  In the NASDAQ, that drop was 20 points.

The mere fact that the market dropped in the morning and Never recovered is a serious win for the bears.  Yes, the headliner Dow dropped a giant 9 points which tells the masses that the market was essentially flat on the day.  If they took the time to look at their mutual funds or their stocks they would see that the market was indeed down and significantly so.  

On the day, the RUT (Russell 200) was down 1.34%, the NASDAQ 100 (NDX) was down 1.86%, and the PHLX Semi-conductor Index (our old friend SOXX) was down 3.86% so you know where the weakness was.  Looking at the SOXX, all 19 stocks in that index were down and some, like NVLS (Novellus Systems) and KLAC (KLA Tencor), were down over 6%.  

Then after the close, IBM announced earnings and even though they seemed to be good on the surface, but they only beat expectations by, you guessed it, one penny.  How do they get that close???  That news was met with selling in the stock and by the end of the after hours session, IBM was down over 5 points (5%).  This “little” drop in IBM is equivalent to about a 35 point drop in the Dow so look for that on Friday morning.

As we viewed the market from a distance, there seemed to be a sudden turn in the market that should lead to a very serious correction in the tech world for sure.  The Dow has been in its own little world for quite some months now but it will have trouble ignoring the rest of the players for long.  

So far, our analysis for the month of January has been pretty close to right on.  With the indications that we should see some more selling over the coming weeks, the market is on track to take a little air out of these massively overpriced stocks.

Here is the situation:  For the most part, when stocks start going down for what appears to be no reason, they are going down.  That may sound like a cliché but the truth is that when the market turns like this, buyers just disappear.  Now, we will hold our judgment on this market but the last two days are a big clue.  If the rallies don’t do much then buyers will step away and prices fall.

We hope that you have taken appropriate actions to lighten your exposure to the market.  If so, then you can sit back and enjoy a little pullback so that we can find a little upside later in the year.

Dow Industrials:  12,567.93  -9.22
VIX: 10.85
HUI:  310.98
QQQQ:  44.08
RYVNX:   16.58
RYAIX:  21.16
RYCWX:  34.94
TLT:  88.23
BEGBX:  13.52

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