Indexes Erase Yesterday's Gains On A Nasty Selloff; Volume Was Lower, Easing The Pain.

Stocks did not bask in the rally for long did they? The gains from yesterday were immediately reversed today. The blame, today, was on Iran, Lebanon, and the terrorist Hamas government.

The Nasdaq fell 1.8%, the SP 600 fell 1.7%, and the Dow Jones Industrial Average and SP 500 fell 1.1%.

Volume was lower on both the NYSE and Nasdaq. However, that is not much comfort to those stuck in longs going the wrong way. Breadth was negative on the NYSE by a 11-to-5 margin and negative on the Nasdaq by a 3-to-1 margin.

We already know the technical situation in the Nasdaq is bad as it is in a major downtrend and its moving averages have already given the "death cross" signal. Now the SP 500, 600, NYSE, and DJIA are failing at the 50 dma. If these indexes rollover and wipe out the lows on June 14th ending the follow-through, it wont be much longer that the 50 dma will cross below the 200 dma signaling the "death cross" for these averages. To see anything bullish in this, other than the fact that all bear markets have to end eventually, is simply foolish.

The two distribution days were a warning sign but the rally never really had any legs to begin with. If you go read my last 14 post you will see the sectors that were/are working in this rally attempt are the sectors you don't want to see lead a bull. That just tells you that we are about to start a bear market. Food, beverage, medical, consumer stocks do not lead during bull markets.

I guess anything can happen but I still think staying defensive, keeping cash heavy, and just being patient is the smartest thing to do. If you do make any buys, cut your losses quickly. If it reverses right after you buy it but doesn't hit your stop, you still might want to sell half. This is not a kind market to longs.

Trust me if things change I will be the first to jump on the longs that breakout of nice bases. But until I see more stocks like that I will wait. I know a couple of traders that I am normally right on point with all the time diverge in their opinions on this market. One seems to think it is too negative out there. Maybe it is but I still have not seen the new Institutional Investor Newsletter Survey or the AAII survey of bulls and bears. I know for a fact it is still not at extremes. Another thing is that all of my oscillators are overbought. MACD, McClellan, and 10 dma of adv/dec are all in territory that says stocks should go down not up.

We shall see what happens. Who knows maybe the two surveys show bears jump to new records and bulls fall to new record lows. It could happen. If that was the case, the current geopolitical environment would have me bullish. But I still don't see the charts. The charts that are working are all defensive or stocks breaking out of EXTREMELY late-stage bases. Who knows!

Have a great day and I will see you at Investors Paradise on my forums.

New Swing Longs: NONE

Adding To Long: BSML

New Swing Shorts: RCNI AMMD POOL AB EWG TRMK UPL TKLC

Longs Outperforming (IBD stocks/heavy volume move): PMTR-83 SMSI-82 KNOL-139 PAY-36 USEY-26 TZOO ITG HMSY LEAP BMR DGX BSML NWS HNZ KHDH

Shorts Outperforming: PII ULTI NAFC TXRH GTRC ZRAN JOYG SWC RES MAS PBE XNPT CTCO GYI ITWO BBBY IKN MAFB BTH APOL FRZ AVID TRI RTP AMAT ELY BPFH CRXL

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