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Point & Go Figure: Midweek Market Review


Topping is a process, not an event


Short-term Overview:
The short-term conditions, extended and in high-risk areas, are positive but continue to deteriorate. The percent of stocks above their 50-day moving average indicators for both the NYSE and Nasdaq are making lower highs from each successive peak dating back to 2004.

Meanwhile, according to figures from Investors Intelligence, the High-Low Index for the NYSE and the Nasdaq are both at extremes. These indicators remain at their highest levels since this past summer, while continuing to show a long-term divergence indicative of an important near-term top forming.

Intermediate Overview:
The Nasdaq-100 Bullish Percent
reversed up yesterday to 66% from a low of 60%. This bullish percent measures participation by just 100 stocks, so it can move quickly. Meanwhile, the pattern of decreased participation and lower highs remains intact dating back to this indicator's peak at 90% in June 2003. The Dow Jones Industrial Average Bullish Percent remains negative. The S&P 500 Bullish Percent is positive, but in high risk territory above 70%. What these bullish percent indices are saying is that fewer stocks are participating in each rally.

Long-term Overview:
While the bullish percent charts for the NYSE and Nasdaq Composite remain in Xs, the pattern of lower highs (meaning diminishing breadth and participation) combined with their relative high risk level, continues to suggest we are closer to a conclusion of the cyclical rally that began in October 2002 than to the beginning of an important new leg higher. The reversal down in some of the short-term indicators has raised the risk that an important new leg down in the longer-term structural bear market is close to beginning.

Charts of Interest:
Reuters-Jefferies CRB Index (CR/Y)
(Chart courtesy Dorsey Wright)

Nasdaq-100 (NDX)
(Chart courtesy Dorsey Wright)

December Corn
(Chart courtesy Dorsey Wright)

Pacific Ethanol (PEIX)
(Chart courtesy Dorsey Wright)

General Electric (GE)
(Chart courtesy Dorsey Wright)

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No positions in stocks mentioned.

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