Monday, March 28, 2011

Late Collapse

The market saw a peculiar mix of action today. There was some strong action in bigger-cap momentum names such as NFLX, LULU, TZOO, OPEN, PAY and APKT that was probably window dressing action, but breadth was negative and we had an unusually weak close. We haven't had many closes at the lows even as the market corrected so that is not a good sign. On the other hand, volume was the lightest of the year, which means the big institutions weren't rushing to exit.

After the bounce we have had over the last seven trading days, stocks look very vulnerable. They have simply gone up too far, too fast on light volume and may need some simple consolidation.

But maybe the good news is that the reversal today is what we needed to work off the overbought technical conditions that have developed. The S&P 500 is still holding above its 50-day simple moving average on very light volume. The bulls are in good shape to regroup and make another push higher after a bit of a correction, so it isn't at all negative. The market may need to consolidate, and that's what is happening for the most part. There are some cases of end-of-the-quarter window dressing causing some (likely) extended stocks to stay elevated.

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