Market Trying to Go Down

Market Action:
Prior to the opening bell, February durable goods orders were announced and they were a bit weaker than was expected.  There’s that weaker theme again.  January’s number was revised downward from 8.7% to 9.3% and February’s number came in at up 2.5% with an expectation of 3.5%.  Looking very specifically at the orders excluding transportation equipment, which is a common exclusion, orders were down 0.1%, which was the fourth down month in five months.

The denied incident in the Gulf on Tuesday evening did weigh on the overnight futures and, with the additional tug of the durable goods orders, pulled the market down strongly at the opening bell.  The Dow was quickly down about 65 points and traded around there for about an hour.  

At that time, the Fed chairman, Bernanke was talking again but he didn’t say anything the market wanted to hear resulting in another round of selling late morning taking the Dow down about 135 points.  From there we saw a pretty good rally, 75 points or so, going into the lunch hour.  The market couldn’t hold that ground and finished where you see in the table below with the Dow down nearly a hundred points.  The NDX, NASDAQ 100, closed right on the low of the day.

Opinion/Analysis:
Nothing is ever easy and this market is a difficult as it can be.  We believe the market wants to go down in a strong selling wave after correcting the first down leg that started last month.  Right now the Dow has retraced about the right amount of the decline.  In our earlier posts we talked about the 12,500 area as the most likely area for the Dow to get to on this correction.  Last Friday morning the Dow traded at 12,511 which is almost picture perfect.  

So, why do we sound so unconvinced?  Well, the decline from last Friday’s high has not been one to make us confident in a strong decline.  But, as long as last Friday’s high stays in tact we must continue to think the market wants to go down.  The short term does not always play out the way you want it to but we still would like to see a small rally to keep everyone guessing as to what the market is doing.  Plus, a rally would give us another chance to play in the fire, with put options.

One thing to consider as we watch the market turn is the preponderance of bad news with regard to the economy.  According to the guys over at Elliottwave.com, when the market gets in gear on the downside here, there should be something new going on in the news.  In the rally phase we have been in since late 2002, the stock market has heard mixed news such as housing was strong and oil is strong.  You wouldn’t think that these two things could be compatible and bullish but stocks rallied.  When the market goes down this time, the news should match up with the down move—bad news matches up with lower stock prices.  Right now, we think it is safe to say the news is mostly bad.  

Dow Industrials:  12,300.36  -96.93
VIX: 14.98
HUI:  340.29
QQQQ:  43.52
QQQRR: 1.48 bid
QQQRT:  2.65 bid
RYVNX:   17.17
RYAIX:  21.67
RYCWX:  36.80
TLT:  88.57
BEGBX:  13.89