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Breather or Top\?

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Breather or Top?
Molly Evans

I'm not one to base my trading on the news. The news matters only sometimes and darned if I can figure out when it's going to matter and when it isn't. However, when we sit down to write a wrap, we're supposed to check the newswires to see what "really" went on in the market besides whether there were more buyers or sellers.

I think it's always pretty amusing what "they" attribute the market's move to. The headlines tonight say that it's political uncertainty. A Vermont Republican senator is all ticked off with the Bush administration and says he's going to become a Democrat. I heard that news yesterday. The futures didn't dive on that announcement. Was it the semiconductor book to bill ratio? That news was out yesterday too. Semiconductors were strong in after hours trading yesterday. Tell me they didn't know this report was going to be dismal? You trying to tell me the market has its collective head in the sand and got surprised by that? Not a chance.

Is it possible that bad news is going to be bad again? Well, why bother now? Nothing has mattered in the last six to seven weeks. The market knows that there's going to be all kinds of warnings and preannouncements of earnings disappointments. But no, they're looking ahead to NEXT year. Whatever spin they can put on it, they do. Now if we swoon, CNBC will parade everyone out to say, "we're just seeing some healthy profit taking at this point, it's had a good run through here but it does now present a nice buying opportunity." Of course! Always a reason to buy! Just sweep anything less than pleasant under the rug and let's accentuate the positive: the second half recovery, our saving Fed, blah blah, blah.

Here's a novel thought. How about the market went down today because it's way overbought? It's a technical thing. The risk became higher on the upside than to the downside. We've been saying it's overbought seemingly forever but today was the first day that we saw any kind of a pullback. There was steady selling all day and each of the major indices closed on their lows to suggest that there's more in store for tomorrow.

The Dow was whacked for 150 points closing just above 11,100. The Nasdaq was down 70 points or 3% on the weakness of the biotechs and semiconductors. The S&P 500 lopped off 20 points or 1.5% as well. Volume was right at the average for daily volume while the prior two days had been relatively heavy. The key is that yesterday's heavy volume wasn't able to push prices higher any appreciable amount, the indices went through changed and unchanged a number of times and taken together, that that smacks of distribution.

So Is This The Fabled Buying Opportunity or Down From Here? Oh man. Don't I wish I knew. You're not going to get me to say either way. I believe that fundamentally, it's a screaming sell. But I hate it when beasts running the street trample me. Therefore, I look at charts, indicators and the tape. Right now, they say she's going down.

The Dow is sitting on its 10 day moving average while the Nasdaq and the S&P merely look like they want to get there. The S&P and Nasdaq futures held their ground pretty well until the end today. The two-day low in the S&P was 1290.25. That just got violated in after hours trading. The two-day low for the Nasdaq futures is 1922. That's not been crossed yet but both the S&P and Nasdaq futures are being run down on new lows right now as I write. We're at 1286 for the S&P and 1946 for the Nasdaq.

The VIX and VXN came back a little bit from their irrational exuberance readings. That needed to happen. So with today's sell-off or profit taking or whatever you want to call it, the short-term 30 and 60-minute charts are oversold. It may catch a bid but from here but there is going to be formidable resistance in my opinion.

People know they've probably overstayed their welcome on this rally and the flood of earnings warnings due to hit the market next week might make a few a bit nervous. Shoot, some stocks have already hit analyst's yearly targets. There always has to be an "on the other hand" though. So, on the other hand, the bullish sentiment can carry a rally pretty far and the first pullback will probably get bought. The telltale sign will be the volume. Will there be enough volume to convincingly carry the ball back into the end zone? There are plenty of bulls out there to scare the public into thinking they're the dumbest people on earth if they're not taking this opportunity to buy on a dip.

We just have to see. Austin spotted a pro play today. One must wonder if it was really a pro or just someone throwing his $5 million into the wind? The puts were sold on the bid and the calls were bought above the ask. We know that somebody is hurtin' for certain on today's abysmal close. Those puts are now asked at $29.50 and the calls are bid at just $19.60. Tsk Tsk Tsk.

It's going to get interesting from here. Not that it hasn't been already. If support levels don't hold, which I can't imagine that in this initial period that they won't, then trouble is really brewing. But of course, we know that would be short lived too. Why? Well, isn't it obvious? They'll just announce another interest rate cut.

That's enough for tonight. I had fun on Market Pulse today. It's always good to hear from you people out there. We don't always make all the right moves, but we try to make more right than wrong. Additionally, we exit graciously if we wear the wrong thing to the party being thrown that day. I hope you're doing the same and prospering for it.

Good nite. See you next time.

MKE

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