Wednesday, September 06, 2006

Sellers Come Out Hard Against The Low Volume Rally; Stocks Suffer An Ugly Distribution Day.

A series of economic numbers including the productivity report showing that the cost of labor rose the highest in 16 yrs. helped reignite fears that the Fed may have to keep hiking rates. That along with a nasty layoff announcement from INTC helped knock stocks down across the board.

When all was said and done, the SP 600 led to the downside with a 2% loss, the Nasdaq followed with a 1.7% haircut, the SP 500 fell 1%, and the Dow Jones Industrial Average helped up the best with a .6% loss. The IBD 100 and SOX led to the downside, once again, continuing the trend of lagging, with the indexes falling 2.3% and 3.3% respectively.

Volume was higher on today's selloff, with the Nasdaq's volume higher than the 50 day volume average. This shows that the big boys have returned and they are returning as sellers. Breadth was horrible with decliners over advancers by a 3-to-1 margin on the Nasdaq and by a 4-to-1 margin on the NYSE.

There were a lot of economic numbers for everyone to digest out there--Fed Beige Book, ISM Service Index, and the Productivity report--and I guess traders picked and choosed the one they wanted. Unfortunately, for the bulls, today, they picked on some great numbers (wage gains).

Today's losses was the first distribution day since the follow-through day in August. One distribution day is normal but if two or three more pop up in the next two weeks we will know for a fact that the low volume rally is officially being sold. Right now we are only beginning to confirm what all the overbought oscillator indexes have been telling us for a week or so--that the market was overbought. Everyone and his brother was expecting this and the market made those expectations come to fruition; you will not see that happen often, in the stock market.

Another tell on the weakness today was the fact that the IBD 100 again led to the downside. This index (besides yesterday) has continued to lead to the downside and lag to the upside. This along with the SOX leading to the downside has to give traders enough of a hint that the tech rally's time is not yet.

We will have to see if the selling continues giving us more distribution days and a clear "get out" signal or if buyers step in and support stocks. No one knows the future so we have to be prepared for either scenario. Predicting the future is bottom line ignorant and a moron's play on the market.

Stay heavy in cash; I recommend no more than 25% in longs and 25% in shorts. Stay patient, cautious, and keep your watchlist updated for possible new longs when the market makes a real turn. Your portfolio will thank you for your due diligence.

I will see you at Investors Paradise, Aloha!

New Swing Longs: INPH

New Swing Shorts: IXC ASH PTR XHB

Longs Outperforming (low vol non-IBD excluded): Q-95 OMRI-30 CXW-26 WGA CTCM ACGL SEIC DGX VTIV MA AIQ MNG HNZ RMR

Shorts Outperforming: NTE-46 SWC-37 ZRAN-26 GYI-23 BPFH-17 DDE-18 XPRSA-15 PII IYT PDCO WTI WERN CPF DSL NCI EXBD HYDL USU FDX GSF CCO KG CPE CFC KMP NGS KMR ARO SIGI

Stocks On Radar Screen: ACP

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