A Surprisingly Weak Market

Well not much of a rally after all from midday yesterday; we had our closing minute "mark up" rally late yesterday, but it has been quite weak today despite initial strength in Europe.

With my exponential moving averages, we are firmly below the 50 day moving average and yesterday and today's intraday highs just scraped it from below. But it was unable to burst through. On this chart there is no real support other than S&P 880 (others are using 875) Once (if) these levels break, I think S&P 830s is a given.


With the simple moving average, we are getting the situation I explained in the weekly summary - the 200 day moving average is falling at a hearty rate, but it's providing "support" each day even as it falls. Yesterday it was S&P 887, today it's 885. Not too long from now it will actually cross below the line in the sand 880 and then 875.


While this chart could be construed as "bullish" as we continue to bounce off the (ever dropping) 200 day moving average, we have a trend change that tells us that rallies are now to be sold and new shorts installed, rather than vice versa. I had a few short set ups with limit orders 5-7% higher than current prices around noon yesterday, but none of those hit late yesterday or early this AM.

I expect a mad rush of sellers once we break 875-880 level if and when. A bit surprised no oversold bounce here, unless that charade in the last 20 minutes of the day yesterday was the bounce. The "buy the dip" mentality will continue until it no longer works - it worked somewhat late yesterday but the gains were meek.

So now we wait to see how this congested area of S&P 875-885 resolves. But intermediate term all signs point to bear.

Let me throw NASDAQ in here since it has been the outperformer for the year; yesterday this index underperformed and is doing so again today. Remember, I said this is the place institutional money is hiding because "it's safe" - it is crowded. I said the same "crowded" thing about "reflation" a month ago - I expect the same bad reaction when and if the market begins to break down.

The story here is much more simple - we're right at support. If this breaks, you know the story.

I'll be targeting Research in Motion (RIMM) as a short if we breakdown on NASDAQ - it is holding onto dear life.

Comments

[John Galt:]

Pardon me for sounding like a bit of a conspiracy theorist, but would this have anything to do with Goldman's program trading info being compromised? Our friends at Goldman Sachs were making a huge percentage of trades for the market and they suddenly dissapeared.

Jul 07 04:35 PM

[Gtarras:]

they must have disappeared in trading of all of my stocks, as volumes dropped by a third in all of them over the past few days...


On Jul 07 04:35 PM John Galt wrote:

> Pardon me for sounding like a bit of a conspiracy theorist, but would
> this have anything to do with Goldman's program trading info being
> compromised? Our friends at Goldman Sachs were making a huge percentage
> of trades for the market and they suddenly dissapeared.

Jul 07 05:29 PM

[ain't no fo...:]

It goes back to the same thing for weeks now - there is no liquidity in the market - volume has been abysmally low even well before the "summer" doldrums set in, big bid/ask spreads, VIX ramping again.

There is something fundamentally wrong with the markets - whether it is some type of aberration related to the GS situation, or to losses in the quant funds in general, or the general public and some institutions just don't want to participate anymore in this rigged game, the market is, to coin a much cited word, dysfunctional... to the extreme.

Trader Mark your 200 SMA got breached today and the SPX sits at 880 support. It never even made an attempt to get back above its 50 EMA resistance. Momentum oscillators have all rolled over hard on SPX and the INDU, and many other indices, and the internals are, as expected, horrible.

A break of 875 SPX suggests support at 825 SPX. INDU looks like support at 7850.

Lots and lots of individual stocks and sectors have really rolled over hard as well and are crashing through major support. I've thought we had a chance to see a 1987 type event late summer/early Fall, and I stick to that thinking today.

Jul 07 07:52 PM

[ken3602:]

I don't short individual stocks, but RIMM seems to be a good one to short.

Jul 08 12:16 AM

[Moon Kil Woong:]

The simple fact is a market is fundamentally unhealthy when program trading accounts for anything over 10%. The level of program trading GS and others have been doing is suspicious at best. Even with such high program trading volume, daily turnover has been anemic.

In my book, market weakness is a secondary story to the lack of volume. One is cause, the other is effect.

Jul 08 01:19 AM

[Zenfar:]

It is triple negative for RIMM, Palm and Apple have new product that people want and they have a bad tape as well.

Still a lot of people looking to buy this one on the dips...

Jul 08 01:44 PM