Friday, January 21, 2011

Good Reports Getting Punished

It was a fitting end to a week that saw the worst selling since August. Not only did we have a poor close but we have to be at least a little concerned that the market might be undergoing a change in character which will lead to a more vigorous downtrend. We aren't broken yet, but there are some worrisome developments.

Good reports from AAPL and GOOG were sold, and small-caps were pounded as bids disappeared. The DJIA managed to escape the carnage with some good action in a small handful of stocks, but it really was a very misleading indicator of the overall action.

The biggest shift this week was that the dip-buyers just weren't there to bail us out. After the selloff on Wednesday, there was little notable bounce on Thursday, and then the opening gap this morning was faded. We just didn't have that tenacious dip-buying that has served this market for so long.

What was particularly troubling was the very poor action in small-caps and many big-cap momentum stocks, especially the cloud computer group. Those are the stocks that the aggressive speculative money tends to favor, and when they act poorly, the downside can come very quickly.

If you were holding long positions, it was very tough not to take some hits this week, but if you have taken your hits and made some defensive moves, then you'll be in good shape. This market has come back from the brink of disaster so often that it is dangerous to be too negative, but we certainly have to be wary when so many stocks act so poorly.

The good news is that we needed a shakeup to create a new crop of opportunities. We were almost ridiculously extended, and it was becoming very difficult to navigate at those nosebleed heights.

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