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Sunday, April 10, 2005
Market Recap
Oil was down .79 on Friday for the 5th day in a row, closing at $53.32. That did not help the stock market like you would think it should. The indices are all in trouble again from a technical stand point. I have charts of the DOW and S&P tonight so you can see where the trouble is. With Friday's close down and near the lows of the day, these indices are all falling out of rising channels. Dropping below the channel is never technically sound if you are long the market. On Friday, the DOW dropped 84 points and closed back below the 10500 level. The NASDAQ fell 19 points and closed below the 2000 level again but still above its 200 SMA at 1993. The S&P fell 9 points on Friday for a clean sweep of closes at the lows of the day.
Market in Trouble Technically
There is not much else to say except what we have said all along. The market is in trouble from a technical stand point and I will stick with that opinion until it proves itself different. If you go back and look at some annotated charts of the big three indices shown before, you will see that I expected a bounce after dropping close to the 200 SMA on the DOW. We got that bounce but I also recommended not to put a lot of weight into this bounce and cautioned that we should be short at least some stocks in case the bear market came last week. I thought that the DOW would close below its 200 SMA last week and I mentioned that in one of the commentaries. It moved below the 200 SMA last week intra day but did not close below it. This week, I think we will see a close below that level so you will need to have some short positions open, when and if this happens.
A Drop Below 200 SMA is Coming
A test of the 200 is almost a given, but the close below is what will be the signal to sell short. These re-tracements back to test the 200 SMA are not uncommon in down trends and this market is definitely in a short term down trend. When it trades flat, there are some stocks that set up well and look strong but when we get into these strong stocks for swing trading, as soon as the market has one of the down days it had on Friday, these strong stocks get overwhelmed and succumb to the selling pressure. This is why breakouts have been failing. Another breakout play on Friday was ESLR and I took the trade early in the day as it was breaking above $8.00. It looked great for awhile but when the market is down and closes at the lows of the day, these breakouts end up lower also. Do not give up on your short positions yet if you have any. It looks more and more with each trading day that the indices are going to drop below their 200 SMA. If this happens, we will be in a long term down trend and short will be the position of choice going forward.
Heart Wants Bull, Head Says Bear
With oil down big last week and down .79 on Friday, I would have liked to have seen the DOW up 100 points instead of down almost 100. When oil falls, stocks should rally and that is not happening. That to me is a red flag and what if oil returns to its highs around $58 a barrel from here? That should send the indices to a close below the critical 200 SMA for sure. Please understand, I am not rooting for this to happen. I want a bull market as much as the next guy, but it is like a football game, I can root for my favorite team because my heart wants them to win, but it does not mean that I think they will win. I am rooting for the Bull but I do not think it can beat the Bear at this point in the season. Hopefully, the Bull will get stronger as the season goes along and is able to come from behind and win for the year.
Important Announcement
There will be no bulletin or commentary the week of Apr 18-21. It is spring break and I have a trip planned with my family. This is the first vacation that I have had since September 2003. I will do a bulletin on Sunday Apr 17th and the next bulletin will be the following Sunday Apr 23rd. I will miss 5 trading days and 4 bulletins but will have stop prices listed in the Sunday bulletin on any positions I leave open. If those stop prices are reached, Mike Serven will send the sell alerts.
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