Wednesday, September 3, 2008

Channel break

I've gone over historical data with subscribers that suggests we should see some kind of rally attempt after today's weak decline. However there are some disturbing signs popping up.

First the S&P looks to be trying to break down out of the rising channel. It actually moved outside the lower trend line today before managing to close back above it.

More disturbing is the relative weakness of the Nasdaq. The tech sector has clearly broken the trend from the July rally and has taken out the Aug. lows. It has failed three times to move back above the 200 DMA and is now threatening to break below the 50 DMA. If this rally were healthy we should see the speculative tech sector leading.

Remember all those analysts pumping the tech sector as sub prime proof and recession proof? Funny, I don't ever remember a recession where tech was a safe haven, do you? One has to wonder if anyone really believes this crap.

The next chart is equally disturbing. Money continues to flow into the safety of bonds. To top it all off Lowry's selling pressure is starting to rise again.

I'll say it again, bear markets end in multiple 90% down volume days followed by a buying stampede as smart money comes roaring back into the market looking to buy value. We've had one 90% down day since June and there's been no rush of institutional buying. The smart money is still trying to exit this market. The only ones buying into this rally are the retail investors listening to Cramer.

These are the same investors who bought housing stocks at the top when Cramer was pumping them in 06. Or tech in Oct. 07 when Cramer was calling for 16,000 in the Dow. Recently the minnows got caught in the great wildcatter bonanza of the summer of 08. Want to take a guess what Cramer's pumping now? Financials and housing stocks!

I can hardly wait to load up tomorrow on these buys of a lifetime???