Tuesday, November 10, 2009
NYSE/DOW Sell Signal Given; Overall Market Very Fractured - Unhealthy
BEFORE PLAYING THE VIDEO, PLEASE READ FIRST PARAGRAPH:
The market remains fractured and the Dow Industrials continue to churn higher like the little engine that could, only that many other important indices and sectors are not following its bull run, like the Transports, Utilities, Russell 2000, and the XLF who are all severely lagging and are unfolding in very corrective looking patterns. Silver also sold off more than 2% intraday, again severely lagging gold and indicating risk aversion is brewing underneath the overall market. It's as if the Dow is "running the wrong way", and everyone knows it but the Dow, as the other indices are just sitting their watching in disbelief of the Dow's charge higher. Okay, now watch the embedded American football video........the player in the clip is my analogy of the Dow, and the other players are the other indices.
It appears the reason for this "fracturing" is that money is shifting around, but it's shifting into only a small amount of securities, mainly in the Dow and gold. This is not healthy, and signals a severe exhaustion of trend; a trend that has lasted since March of 2009.
So to illustrate this fractured nature of the market and to keep your eyes on the overall market, and not just the headline Dow number:
1) I posted the NYSE internals data showing that there was a solid more amount of sellers than buyers today, and about 56% of the volume was to the downside. Hardly a great case for the bulls after such a huge day yesterday.
2) Notice that the NYSE closed down today, yet the Dow closed up. Some of you may remember that this signal in the past has predicted huge selloffs the next day, and that held true when I announced it October 27th (click here for the actual post). The next day the S&P sold off 19 points (click here for the actual post). We'll see if another big selloff occurs tomorrow in light of this NYSE/Dow sell signal.
3) As I mentioned this morning, the Russell 2000, which is a great risk measurer because it has all small caps in it, has appeared to have completed its correction, declined in 5 waves today, and is far far away from making a new daily high with the Dow.
4) The financials, the DJ Transports and Utilities did not come close to making new daily highs either. Nor did any major index make a new daily high for that matter.
5) Silver is also another great "risk barometer". When people start to get scared, or have less of a risk appettite, they sell their higher risk assets, like silver, small cap stocks, technology stocks, etc. Silver's weakness, especially in comparison to gold lately is a warning sign.
Are you picking up the analogy of the Dow and that American football player running the wrong way yet? It seems that everything in the stock market is so bullish, and the Dow is soaring, making headlines bringing euphoria back to the market. But when you dig down deep into the overall stock market, you see that the Dow is alone in this endeavor at the moment.
The other key measure, the dollar, made some mild progress today and last night showed some big strength. It still remains above its lows made against the euro and chf, so the bullish path is still on track.
So the bearish case was severely weakened yesterday, but today it's made some progress, and the fractured nature of the market, along with the Russell's 5 wave decline, and the NYSE/Dow sell signal in place, it's possible that tomorrow will be a big selloff. The mere fact that the Dow Industrials made a new daily high and the other indices did not, with some severely lagging, is very bearish as long as it holds. The only kink in the armor is that it's Veteran's Day tomorrow so volume will probably be light and it may throw a wrench in things. Regardless of the short term action, the market is clearly sending a signal that it is fractured, hobbling, and unhealthy. I remain short term bearish against S&P 1101 and long term bearish against 1576. I made no trades today and my long term puts and small short term call positions remain in place.