Thursday, January 11, 2007

Just Another Dow Record

Market Action:
The Dow decided to run to a new high on Thursday following the NASDAQ indexes up.  Both of the NASDAQ indexes we follow, COMP and 100, moved above their highs set late last year.  The SP 500 and the Russell 2000 (RUT) did not follow suit, just yet anyway.  The RUT has been the real market leader over the past several years but it has failed to push to a new high so it is lagging behind now.

Since we have seen a few non-confirmations of the Dow’s new high, let’s take a look at some of the other ones while we’re here.  The technical picture is quite different than the one we saw late last year when those NASDAQ highs were being set.  There is very little leadership at this point and the move is getting narrower.  

We see that the number of new highs on the NYSE on Thursday measured 280 a far cry from the 585 new highs set back in December.  The 5 day average new highs back in early December were 424 compared to Thursday’s 155.  This tracks somewhat with the 5 day upside volume of 832,890 is also lagging behind a more powerful December figure of 1,044,890.  Our momentum indicators are also showing lower numbers than we saw late last year.  The volatility index, VIX, dropped today as it should when the market rallies like this, but it did not get down to the lows registered over the past month.

By themselves these numbers are not too meaningful but the new high in the Dow shines a bright light on them.  Upside leadership is waning and the bull is showing signs of fatigue.  

We have been talking about the Dow spiking to a high in the first two weeks of the year and we were hoping that the NASDAQ indexes would fail to confirm that new high.  As of the first trading day of the year, they hadn’t but Thursday’s trading is a different story.  

This gives you an opportunity to examine your own stocks and whether they are performing well or not.  This includes looking at your mutual funds, too.  The question is, “How much further can the bull move go?”  Our answer tonight is, “Not very far.”  

Looking at the Dow, we see that it made a high on December 19th of 12,471 and Thursday it made a high of 12,515, for a full 44 points of upside in the last three weeks.  On December 15th, the SP 500 made a relative high of 1427 and on Thursday it closed at 1423 for a loss of about 4 points in the same period.  Yes, the picture in the NASDAQ is a little better for that time period but if you go back to November 22nd, the Comp closed at 2466 and Thursday it closed at 2484, 18 points higher or less than 1%.  Take a look at the RUT and you will need to go back to the closing high set on December 5th at 797 compared to Thursday’s 788, a loss of 9 points.

We want to ask you why people are so Bullish at this moment with these types of incremental moves in the indexes.  We have no idea with all of the data we showed you above.  When prices do start going down they will not drop by 44 points, they will drop by 444 points.

Be careful getting caught up in the bullish insanity.  

Dow Industrials:  12,514.98  +72.82  (new record high)
VIX: 10.87
HUI:  309.95
QQQQ:  45.08
RYVNX:   15.82
RYAIX:  20.66
RYCWX:  35.17
TLT:  88.45
BEGBX:  13.49

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