Monday, April 30, 2007

April is Capped by a Down Day

Market Action:
As the market opened, there seemed to be a definite downward tug but within an hour or so, the market turned up and the Dow went into record territory around 13,160 and traded near that for about two hours before heading into the last couple of hours of trading. That’s when the market sprung a little leak, not a big one, but a leak. The Dow managed to close down on the day, 58 points, for a change.

Meanwhile, the NASDAQ indexes were not doing nearly as well as the Dow in the early part of the day. In fact, they were struggling to get back to even as the Dow was moving to new record trading highs. As the Dow dropped in the last few hours, the NASDAQ indexes dropped even harder with both the Comp and the 100 down over 1% on the day.

So, what does it mean, the third down day in 22 for the Dow? Over the past three days of trading, the market has been showing some weakness in the advance/decline line along with the up and down trading volume. On Monday, the volume was fairly heavy given the average amount for April. While the Dow is making new highs and the NASDAQ Comp is trying to show some strength, the volume is betraying the advance.

Now, on Monday, prices fall and the immediate question becomes, “Is this a buying opportunity?” Since we do not believe the market has much to go on the upside, we don’t think this is a buying opportunity. The momentum has been fairly strong over most of the month and the market has been overbought during that same period of time. Monday’s trading gave both of those notions a stiff drink of reality. We do not think this is the last day of the correction but then the question is, “How far will it go down?”

The answer to that question is that there are several interpretations to the pattern, one being fairly bullish—but of course we don’t think that is good possibility due to the massive bullish sentiment. But, we have been wrong before. The best way to look at the pattern is to say that there are points of support that if broken can lead to more significant declines. We will watch for them and let you know what we think here as they happen.

One of the interpretations is for the market to drop a few days and then make a final new high and we like the Friday jobs’ report for that scenario. We have to see more of the pattern this week to assess the likelihood of a Friday morning high. Right now, we are just going to enjoy a little downside even if it’s only for a couple of days.

Dow Industrials: 13,062.91 -58.03 (a down day?)
VIX: 14.22
HUI: 339.60
QQQQ: 45.96
QQQRS: 0.61 bid
QQQRT: 0.95 bid
RYVNX: 15.59
RYAIX: 20.69
RYCWX: 32.90
TLT: 88.75
BEGBX: 14.09

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