Thursday, May 24, 2007

A Good Down Day for a Change

Market Action:
Before the market opened, we found out that durable goods orders were up a little less than expected but last month's number was revised higher. This news did not seem to get much attention but the pre-market trading was stronger. The Dow got off to a strong start in the morning up about 45 points or so.

Then new home sales were reported to be up about 16% last month. The prices were another story as they fell about 10% from last month and some considered that the pop in sales might have been due to the drop in prices. As this report was released the Dow popped again and traded up around 100 points to trade at a new high, but its friends didn’t feel like joining in. It is true they were up early but nothing quite like the Dow. Even the SP 500 didn’t get to a new high. Other indexes were struggling to stay up in the morning but just couldn’t hold the gains. One by one, they all fell into negative territory.

After the Dow’s bolt up to a new high with a 100 point gain, it quickly lost that 100 points and then bled another 100 by the end of the day. It did manage to get a little bounce at the close but still closed down 84 points, or about 0.62%. The SP 500 was down nearly 1% and the NASDAQ Comp was down 1.5% so this was a day of strong downside action.

The volume on the NYSE was a strong 1.7 billion shares and this on a strong down day, with declining stocks exceeding advancers by about 2000. This is some confirmation of a turn in the market. The outside down day in the Dow is another.

We want to reserve judgment on this market until we see a bit more downside but this is a good start to a down move if there is going to be one now. The prices fell through the upward trend line support on Wednesday and in last night’s post we said that a break in trend support should give “us a little instantaneous move in the opposite direction, which we got on Wednesday” and this move continued on Thursday.

In our opinion, there is much hot air to come out of the overpriced market but we can’t be sure this is the move until we see more follow through. We remain bearish with bearish positions and welcome a day like Thursday. The nagging question is can this market now go down or is it another in a long series of fake outs.

The Dow made a very strong reversal move today going up 100 and down 200 and for now, this is a good start. We will examine the moves it can make over the next few trading days and maybe we can get a better idea what its intentions are.

The market is closed on Monday for Memorial Day and we will return Monday evening for your reading pleasure on Tuesday morning. We will abandon the Deflation talk this evening but will resume that next week, especially if the market decides to get dull again. Have a happy and safe holiday.

Dow Industrials: 13,441.13 -84.52 (four down days in a row)
VIX: 14.08
HUI: 318.74 (down 10.67)
QQQQ: 46.16
QQQRS: 0.33 bid
QQQRT: 0.63 bid
RYVNX: 15.55
RYAIX: 20.70
RYCWX: 31.15
TLT: 86.57
BEGBX: 13.77

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