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SPX, NDX, Russell 2000: Pick Your Spots Redux And Random Thoughts


Things are getting outright fugly for the Nasdaq 100.


"We are putting in a bottom Bob," "this is a very healthy correction," "today is a great buying opportunity," "time to pick up some bargains." Bubble-vision must have repeated those phrases, or similar ones, at least fifty times since Monday, and the Minx keeps plowing lower. Am I saying this to rub the recent decline in their faces? Lord no; I've been thinking (sometimes out loud) that we have seen the "top" since late 2003. The TV pundits have a 200 S&P points lead on me at this point. I am highlighting the noise because the "pick a bottom chatter" has not been this widespread since early 2001, and after that Hoofy continued to suffer from his bout of "clairvoyantitis" for another 18 months and 500 S&P points. Bear that in mind (pun intended).

Back to the here and now, a quick update on the Monday charts and a couple of new ones. I am sticking with the daily/longer term looks because, IMHO, the angle of descent has been too steep for shorter-time support areas to be even noticed. Nothing much has changed for the S&P 500 (SPX), but the 1257-1245 zone is now in play and that's where Hoofy must get serious to avoid Boo's crews from really getting excited. The same can be said for the Russell 2000 (IWM), with the subjective twist that the IWM's broken trendline looks/feels far more ominous than the SPX's. Both indexes are now in oversold territory, which means that if they don't bounce soon, something more rotten might be at hand.

Things are getting outright fugly for the Nasdaq 100 (NDX). Below where it is now there is "clear air" down to the 1500 range, which, not coincidentally, happens to be the price projection for the "dandruff" pattern. The NDX has been oversold for several days now, which adds an additional level of anxiety for Hoofy.

Away from the pretty pictures, and shifting to irrational rationalizations of what's happening, I keep coming back to the thought that the markets are seriously worried not about Bernanke's policy, but a widening sense that he is not sure what his policies are. With housing doing its best Wiley Coyote impersonation and the government's inflation data moving slowly toward reality, Boom Boom is in a corner and staying in it is not a solution. With that said, I don't really think he has a choice: if he blinks and stops hiking the bond market will do the tightening for him. If he keeps going he will add weight to the outstanding mountain of debt, but at least the crowds might think someone is in charge.

And on the topic of debt, a big thanks to one of our own for bringing to my attention the KBW Mortgage Finance Index (MFX). For those who believe that the real fun for the housing market will begin when "I-don't-really-have-to-pay-it-back" mortgages start blowing on homeowners' faces, this index might be a very handy-dandy tool. First, it diversifies you away from takeover risks; it gets around the "borrow" problem as many stocks in this group have already attracted short sellers; and offers options with volatilities that, IMHO, do not reflect the potential risks in the underlying stocks. Unfortunately, the MFX does not include the primary sub-prime lenders, but when the fireworks start I doubt sellers will be too discerning. There is quite a bit of catchdown potential between these two well-correlated brothers.

And did you hear Countrywide Financial's (CFC) CEO saying on CNBC that they are starting to see an uptick in delinquencies?

Good luck Minyans!!

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Positions in QQQQ, SPX, MFX, IWM
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