Friday, January 29, 2010

A Troubling Week

If you just look at the DJIA today, you would think that we had just another day of rather mild selling. However, under the surface was some of the worst selling and technical action we have seen in some time.

Big-cap technology names like AAPL, PCLN, GOOG, AMZN and MSFT were the core of the poor action, but the dollar was strong again, and that helped pressure natural resources, gold, oil and other "weak dollar" plays.

The market has "needed" a correction for a while, but what makes this action troubling is that we have had very positive news flow and we were oversold enough to support a decent bounce. It was a real change in market character to stay so weak and to have such poor bounce attempts.

Weak action like this suggests that once we do have a bounce, it is much more likely to fail. Some trapped bulls are going to be looking for better exits, and the long-suffering bears are finally going to gain some confidence.

Another very troubling hypothesis is that there is no upside leadership. We have had some strength in regional banks, and a few of the money-center names had relative strength, but technology stocks with great earnings are acting terribly, and all the small-cap groups that were so hot a few weeks ago are now destroyed.

When we are falling like this, it is very tempting to keep looking for bounces. If you catch one at the right time, they can pay off nicely, but you have to make sure you stay keenly aware of the fact that the overall trend is shifting down. We'll have some countertrend moves, but we have to make sure we always respect the overall trend. We had a great run off the March low, but it now looks like the bears are seizing control of this market......

long AAPL

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