I feel like I'm in Siberia!
I took a heavenly ride through our silence
I knew the waiting had begun
And headed straight ... into the shining sun
Good morning and welcome back to the creeping slack. Yesterday's show (while admittedly slow) raised a few eyebrows from those in the know. It's not that the tape was down a whole lot (although the tech bulls were clearly distraught), it's just that some feel that Hoof's load has been shot and a turn has now twisted this most minxy plot. Will the much maligned bears finally answer their prayers and fill the bullseye with crimson red tears? Or is this quick game of musical chairs simply setting a trap for the now dancing bears? It's a brand new (fast) day in the Minyanville fray so pull out that scale and let's see what she weighs!
While Monday's muck swallowed the chips whole, the rest of the tape escaped relatively unscathed. It surely wasn't a function of the internal health--breadth, was markedly worse for both complexes and the divergence convergence is acute. (The advance/decline volume line for the NASDAQ broke below the trendline for the first time since last March.) To add injury to insult, most four letter proxies have poked a nose through their 50-day moving averages and are squinting at their 200-day cousins. It's been a mighty long time since I've penned that technical level but the trading radar has started to pick up a signal. As I just said to Vossler, it's probably early...but it's also probably a matter of time.
The question, my Minyan brethren, is whether this stealth little correction in tech (down 7%) is getting started or just finishing up. To be sure, the broader market is braving the winds and simply mingling among themselves. Money rotates into the financials (strong as an ox) and consumers (safety play) and despite the subtle underlying shifts, the foundation has remained firm. But what does it mean when the chips melt on a "robust" Applied Material (AMAT:NASD) report or techs tank in the face of a giddy Qualcomm (QCOM:NASD)? Rewind to a year ago, or thereabouts, when bad news started not to matter anymore. Many bears were in denial at the time, if memory serves, and the early sign was the fact that bad news no longer took stocks down.
The lynch pin (or firing pin, depending on your perspective) is the financials. Brian Reynolds had been watching the credit spreads as his main equity tell (bond guys are much brighter) and giving credit where credit is due (pun intended), he's hit the nail on the head. I look at the banks another way (from underneath and with a furrowed brow) but any way you slice it, they're holding the tape together. I'll be the first to admit that I underestimated Elmer's leaky pipes--and I'm keeping a plunger handy--but as long as he doesn't flush, the bulls ain't gonna blush.
I'm not sure if you had a chance to read Professor McGuirk yesterday (my fault), but it seems as if Elmer has become quite the trendsetter. Not only have other central banks followed Nero, er, Elmer, but the sheep are falling in right behind him as well. Now, this can last for a while, as we've seen, but something tells me that Boo's gonna be stocked up on lamb chops for many years to come. Hey, we're importing everything else these days, we might as well import a little inflation!
From a trading perspective, the rubber will meet the roadkill soon enough. While the NASDAQ undercut a prior low for the first time since the March march (be on the lookout for lower lows/lower highs), we're quickly approaching NDX 1450 (multiple tops last fall and big support now) while the McClellan Oscillator is at an extremely oversold reading (-55). Markets can remain overbought (or oversold) for longer than we might think (see: Boo) but that's the dynamic as we ready for our daily dance. Please note, while we're talking levels, that S&P 1125ish is equally important for the old school.
On a housekeeping note, some of you might have noticed that the 'Ville was extremely slow yesterday. This was due to a massive surge in traffic that caused our server to double fault. We're currently in the midst of an overhaul to a state of the art stud and the critters will soon be lightening quick. In the meantime (read: 2 days), we've taken some corrective measures and you should find the speed much better. Along those lines, if you haven't downloaded the Buzz & Banter alert feature, please do so immediately. While the 2004 passport rates will be announced later today, this feature is currently being offered free of charge. Thanks kindly--and make please make sure you read the latest Buzz on Russia. That's nutz!
Good luck today.
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