Monday, June 05, 2006

Stock Market Indexes Continue To Punish The Trapped Bulls.

The markets suffered a brutal beating today, thanks in large part by a double whammy of inflation talk from Ben Bernanke and a threat from Iran to curtail oil supply.

The selling started around 1pm and didn't stop till the closing bell. Stock market averages fell across the board, with the SP 600 down 2.8%, the Nasdaq down 2.2%, the SP 500 down 1.8%, and the Dow Jones Industrial falling 1.77%.

Volume was lower on the Nasdaq and higher on the NYSE. The higher volume on the NYSE gave the SP 500 its second distribution day since the rally started. This along with the failure at the 50 dma makes this selloff look real bad. Breadth was horrible with decliners beating advancers 3-to-1 on both the NYSE and the Nasdaq.

These distribution days and failures at key moving averages for all the indexes as this rally tries to start from the May 24 bottom tells me this rally will probably fail. Another negative is the lack of up days on big volume since the May 24 rally attempt. After falling on such heavy trade, this rally has shown very little accumulation and is still producing no leaders out of any industries besides defensive ones.

A couple of key notes out of "the big picture" in IBD is the fact that the IBD 100 which is home of the best stocks with the best fundy/tech ratings fell 3.2% and 196 out of 197 industries finished in the red!!!! UGLY! Along with this ugly data is the fact that 8 out of the top 10 industries fell 2% or more!! Double UGLY!

I firmly believe that we are going to 6% on the Fed Fund rate. This will ensure the popping (already happening) of the housing and commodity bubble that has happened due to low US interest rates and world wide economic growth. No matter what you believe or what you have been brainwashed to believe by CNN. This was the greatest time in history of world growth. Since the 2002 bottom, world growth has been incredible. Computer technology, high speed internet, and cellular technology has increased productivity and has truely made the world flat.

The comments today by Ben only confirms the fact that inflation is there and is a worry by the Fed. This helps a little bit with the clarity of where we are going with rates. Remember, we have been confused for the past year. Remember the eighth inning quote by the Dallas Fed head almost a year ago? So this clarity could be taken as a slight positive. Only because now we know what they are going to do.

If you have been doing what I have been saying on this blog then today's selloff did not and should not have touched you at all. Defense and keeping cash heavy is the only smart play right now, if you are a new trader or even if you are an experienced trader. As I keep saying, having cash ready to use when the real rally starts is more important than just staying busy and trading just to have something to do.

My shorts are performing quite well and if I have a good swoon with these and my few longs keep outperforming my accounts WILL hit all-time highs while the markets make new lows. I am only 6% off the highs.

If you are new to my blog, go back to a week or two before the selloff started and you will see I was warning everyone on parabolic charts, locking in profits, and noticing the lack of high quality stocks breaking out. Then when the selloff started, I said go to cash and keep new buys very small if you do buy anything. If you took that advice, you are smiling during this pullback knowing you did the right thing and locked in your big gains.

This market is in no mood to have a meaningful rally any time soon. Please go back and at least read the last 10 post to understand what the market is doing right now and what it is in position to do.

Have a great Tuesday!!! Stay positive and stay calm.


New Swing Longs: EGY TIII--for more info on longs, go to Investors Paradise.

New Swing Shorts: RES PVA EZU EWO

Longs Outperforming Market-number is % return since purchase: GIGM-207 SMSI-94 SMDI-143 TSCM-164 HSR IVAC PNRG-61 ATRO CTCI BWP PSPT CBEY LYV PMTR-62 SKIL REFR OPTV FVE SHLD ABI

Shorts Outperforming Market-number is % increase since short: ELY-11 NVT-8 CRXL-8 SWC-8 JOYG-10 CLF-12 WSM-10 FCX-8 EWY-6 ASA-6 ILF-6 MNST-6 NUE-5 SIVB BPFH USG TMO DIA CE DB IYM AMAT EWZ CG RF STLD RS ATI MRK

Stocks On Radar Screen: NCST WVVI CNTY

5 comments:

Y.Y. said...

i emailed the person on investor paradise and im still unable to post there
i guess i will stick around here

Y.Y. said...

covered spx short @ 1255 now.
will go long @1245 or next week

Joshua_NControl said...

Did you email DeMerchant?

let him know what is going on.

Seth is unavailable this summer.

Y.Y. said...

wow!
great timing on my short exit spx already @ 1266

Bluesunze said...

went long Movi yesterday, any opinions ? Lot's of shorts in this one........chart is getting interesting also....