More of the Same

Market Action:
The CPI news rattled the futures at the beginning of the day, or so the media said, driving the opening to be a little lower.  The Dow opened down about 60 points, some of which was due to Tuesday night’s news from HPQ (Hewlett-Packard).  By the close HPQ was down 2 points, almost 5%.  

There was another news item that might have caught the eye of traders which didn’t get too much mention.  We see that another sub-prime mortgage company announced some bad news about its future earnings.  NovaStar Financial (NFI) said it had a fourth quarter loss and warned that “it may shed its real-estate-investment-trust status, partly because of recent loan defaults”, that according to the WSJ.  NFI fell 42% on Wednesday.  The WSJ reported that New Century Financial lost 6.5% and Fremont General last 3.3%, two other companies in the sub-prime space.

But, like we have become accustomed to, the early morning sell off was met with some buying which managed to erase all of the NASDAQ losses and by the end of the day the Comp had managed to close green and at another new recover high.  The NDX, NASDAQ 100, rallied to green but has not managed to break above its January high of 1847.  Will that happen???

Opinion/Analysis:
Well, it is possible that the NDX could rally to a new recovery high but we continue to stress that the near term look at the market is for an end to this balmy bull weather.  The market did manage to turn it around again on Wednesday but each of these recoveries is getting a little weaker.  The volume seems to be showing no signs of increasing and this should be a troubling sign to the bulls out there.  

To repeat, this market is showing new highs in prices but does not get very high marks in the technical indicators under the sheets.  The biggest problem is the volume which is markedly lower than early in this rally that seems to have stretched out over a long period of time.  We normally look at the 5 day upside volume and that has been over 1 billion shares several times since the lows of last summer.  This past week when the Dow has made four consecutive new record highs in a row, that number has failed to get above 900 million.  

We have seen a confluence of our most respected stock analysts come together in their view of the market.  They have all recently become much more aggressive in calling for an imminent decline in the market.  One said tonight that the decline will begin within hours.  You might like to think that all of us, number one should be committed, but more important, are contrarian indicators, meaning you should probably go out and “mortgage the farm” to go long.  Well, we did consider that this evening before writing our post but we still think the mainstream media is on the bullish bandwagon.

The problem with predicting a market turn is that the when is so difficult to pick.  For the most part there has been no reason to be long this market for the last several months because prices have not moved much at all.  

The reason we have remained mostly negative on stocks is that when the market moves down, there may be a mass exodus driving prices down hard quickly.  We don’t like to mention the C word so we only refer to it tonight in the historical sense.  

BE CAREFUL OUT THERE.

Dow Industrials:  12,738.41  -48.23
VIX: 10.20
VIXEC.X: 1.15 x 1.20
HUI:  354.57 (big up move, gold  was up, too)
QQQQ:  45.19
RYVNX:   15.89
RYAIX:  20.76
RYCWX:  34.22
TLT:  88.69
BEGBX:  13.69