Thursday, February 22, 2007

Closing in on a Top

Market Action:
The stock market found joy in something in the early going as all of the major indexes sported gains.  But, a half an hour into the trading session, we saw the high price for the day in the Dow.  The Dow dropped nearly a hundred points in the next hour and a half and spent the rest of the day trading in a narrow range from there, closing with about a 50 point loss on the day.

This day the NASDAQ indexes decided it was time for both of them to break into new recovery high territory.  So, it is complete, all of the major indexes have now made new recovery highs and the Dow has made new record highs.  

The chip sector was on fire Thursday with the SOX (Philadelphia Semiconductor Index) climbing nearly 3%.  Linear Technology Corp (LLTC) was up nearly 10% while Maxim Integrated Products (MXIM) and National Semiconductor (NSM) were up north of 7%.  The chip sector has been sought after for a while now with analysts trying to find something to promote.  These companies are hoping to take advantage of the VISTA wave, even though this is a seasonally slow time of year for tech.

As we come to the end of another week, we are again exhausted from watching this market inch up to new high after new high.  At some point, whatever is trying to hold up this market will break and we will see a decent sized downside move.  

In our opinion, any time in the past three months has been a good time to sell and move your cash to the sidelines, taking advantage of the short term interest rates around 5%.  Our favorite index, the NDX, has crossed the 1800 line so many times in the last three months, we should call in the toll free police—yes, we made that joke up all by ourselves, you get it right, the 1-800 line…

Right now we are most concerned with the trading pattern that is playing out in all of the major indexes we follow.  The weakness in this advance, the persistency of it notwithstanding, has not given rise to a decline in prices but there is a distinct possibility that timing is right here, right now.

The market is certainly at an overpriced place and needs a least some correction.  Yes, we know, we have said this for months now.  The market is about to tell us for certain that it is done going up.  The Best way for it to do that would be for it to make one more little run to the upside that ends in a sell off.  But, we will take a continuation of the downside we have seen in the Dow the last two days.  The major indexes should roll over together right now and show a convincing move through trendline support.  (The trendline is the upward sloping line that forms under the prices over the past several months in the SP 500 and the Dow.  The SP 500 is probably more important because it represents more stocks.)  

That is how we would like to leave it with you tonight.  We encourage you to do some homework this weekend and find your way to make some changes to your asset allocation.    

Dow Industrials:  12,686.02  -52.39
VIX: 10.18
VIXEC.X: 1.10 x 1.20
HUI:  356.34
QQQQ:  45.42  (new recovery high)
RYVNX:   15.77
RYAIX:  20.69
RYCWX:  34.50
TLT:  88.21
BEGBX:  13.65

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