Five Reasons to Be Cautious Now

Smita Sadana  Jun 12, 2009 11:40 am

Five Reasons to Be Cautious Now
 
Looking for a mild correction -- or a dip-buying opportunity.
 

 
4. The Housing Index, which is supposed to "lead" the recovery, needs to perk itself up first.

Some stocks in this sector, Ryland Group (RYL), Toll Brothers (TOL), MDC Holdings (MDC) and Lennar (LEN), while still decently higher than their March lows, have refused to participate in the recent market advance and are close to April lows.

On that topic, I received a note from Minyan David, who postulated that, “if the underpinnings of an economic recovery rely heavily on the consumer, and in particular on a recovery in the residential housing market, what does this negative divergence of the DJ Real Estate ETF (IYR) portend, if anything, for the broader indices? A harbinger?”


Click here to enlarge.


5. Retail is suddenly sagging.

S$P Retail
 (XRT) hasn’t cracked yet but several key names such as Costco (COST), Wal-Mart (WMT), Family Dollar Stores (FDO), Big Lots (BIG) are sprouting key negative divergences versus the recent market advance. Many restaurant stocks are looking substantially weak such as Buffalo Wild Wings (BWLD), Chipotle Mexican Grill (CMG), Darden Restaurants (DRI) and Panera Bread Company (PNRA). Here’s a look at WMT.

                                 
Click here to enlarge

My radar isn't catching dramatic negative shifts as it did back in January. We followed the cracks on a daily basis on the Buzz and Banter (The emperor has no clothes and Hope is not a trading strategy) and that’s not what I am encountering.

But I'm suddenly more cautious on the long side in the short term, looking for a mild correction. Or, to be more politically correct, given the recent action, you might say a "dip-buying opportunity."

Smita Sadana offers in-depth research on historical bear markets and provides you with 10 indicators she's found that together confirm the beginning of a new bull market.  Learn them today so you know when it's safe to invest again.  Bull Market Timer - 7 day money back guarantee.
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Comments (7) See All Comments »
06-12-2009, 11:58 am
Czar inflation raging.... when is the last time even 1 Czar did anything right.

The administration vowing to level the players... leveling the playing field isn't a goal nowadays.

More public debt.. great way to cure a
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06-12-2009, 12:08 pm
Great comments Smita.

I would also add the slowdown in the Chinese domestic economy which has fueled a lot of this move through the commodities as well as rising bond yields as potential correction catalyst.
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06-12-2009, 12:23 pm
Hi, let me qualify buy saying I have puts. Maybe I'm seeing what I want to see on the QQQQ. Looking at the QQQQ daily It looks like its rounding over, it looks like the beginning of a chart pattern that was powerful after the tech crash we call
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06-12-2009, 1:04 pm
Professor S, Measured and well-reasoned, thanks.

The lack of participation by IYR for some weeks got weird lately, with the IYR solidly down on up tapes and up (like today) on down tapes.

Do you have any insight on this rec
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06-12-2009, 4:21 pm
Thomas,

I suspect it could be to do with their respectve holdings, but I really haven't analyzed it thoughly. Maybe I should spend somw time with IYR and XHB this weekend :-)

-Smita
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