Recent Market Weakness: The Technical Damage

Note the price breakdowns Wednesday in the Russell 2000 Index (IWM; top chart); banking stocks ($BKX; middle chart); and homebuilding stocks (XHB; bottom chart). Each group has broken below recent lows, making multimonth lows.

I note also that, Wednesday, we registered 790 new 65-day lows among NYSE, NASDAQ, and ASE issues. That is the highest level of new lows since the March stock market bottom. What that means is that an increasing number of stocks are no longer in a bull market mode of making higher price lows on pullbacks.

We've also taken out the early October low in the advance-decline line specific to NYSE common stocks, as reported by Decision Point. Clearly the recent drop has inflicted some technical damage to this market. As mentioned earlier, as long as we continue to expand the number of stocks making new lows and Supply is handily outstripping Demand, it is premature to try to call a market bottom.

Comments

[untrusting investor]

Good points. Will be interesting to see how this plays out over the next few days. Seems that buy-the-dips is being overwhelmed with increased selling volume now. Looks like fear is starting to return. Combine that with any type of dollar rally and it could get ugly for the bulls in quite a hurry.

2009 Oct 29 12:21 AM

[Roger Knights]

There'll probably be a bounce tomorrow, just to keep everyone confused,

2009 Oct 29 12:56 AM

[Albertarocks]

The great unfairness I see in all this is that during the entire rally off the March lows, this market hasn't been allowed to correct in any meaningful way, all the while on declining volume, maintaining the market at an incredible overbought condition for 5 consecutive months. The unfairness lies in the fact that all those late day and late week "stick saves" were designed to do all those things. The ultimate result will unfortunately have to be a deeper and probably faster correction than would otherwise have been necessary. The innocent are the ones who get hurt in this type of activity.

Obviously the banksters are so greedy and so out of touch with reality and morality, that they've forgotten the oldest wisdom on Wall Street. "Bears make money and Bulls make money, but pigs get slaughtered."

2009 Oct 29 12:57 AM

[Denis Gould]

It feels like something nasty is kicking off here. The way everything correlates up into one big dollar carry trade has an unreal feel to it.

2009 Oct 29 02:00 AM

[Steven Francis]

Must be a revival short and not more than that. The market is recovering very fast and it is sure that we will see some real profits and steep up going curves in the recent future.

2009 Oct 29 02:24 AM

[apppro]

My question is what does (as one commenter said) all this nasty market performance prove? Are we all that willing to let a few short-term thinking option traders/traitors take us ALL back down to levels we should have never been at in the 1st place?

We must start INVESTING in this Nation and we must stop all this short-term gambling that has encompassed the markets for the past 10 years.

The 4 Golden Rules:

1. Reinstate the Up-tick rule
2. Crack down on naked short selling
3. Institute some rules on what should be said on National TV to prevent rumor-mongering
4. Pass a Wind-Fall Capital Gains Tax of 65% on ALL short

AND

Revised Tax Rules:

1. Capital gains under <6 months - 55% tax on capital gains
2. Capital gains 6 > 12 months - 45% tax on capital gains
3. Capital gains 1 > 2 years - 35% tax on capital gains
4. Capital gains 2 > 5 years - 18% tax on capital gains
5. Capital gains 5+ years - 5% tax on capital gains
6. Most critical of all — Institute a capital gains tax of 55% on ALL short sales not directly tied to a long buy by a licensed hedge fund. I'm tired of paying for the pure shorts 3rd vacation home.

2009 Oct 29 06:59 AM

[jeremiah74]

everyone expects a bounce today.. and it seems to be the logical thing. but lets not forget how extended this rally has been, forcing many bears to stop out positions. now everyone expects a bounce, the longs will sell into it, so will the bears who are now bears without shorts..

my fear is that this moves accelerates in the next 2-3 days and then reverses in the middle of next week temporarily. (from here till sometime in Q2, there will be a bear market - imho)

2009 Oct 29 07:07 AM

[greaterdepression]

Yes, the shorts created the Delusional credit bubble.
Enjoy the Crash.


On Oct 29 06:59 AM apppro wrote:

> My question is what does (as one commenter said) all this nasty market
> performance prove? Are we all that willing to let a few short-term
> thinking option traders/traitors take us ALL back down to levels
> we should have never been at in the 1st place?
>
> We must start INVESTING in this Nation and we must stop all this
> short-term gambling that has encompassed the markets for the past
> 10 years.
>
> The 4 Golden Rules:
>
> 1. Reinstate the Up-tick rule
> 2. Crack down on naked short selling
> 3. Institute some rules on what should be said on National TV to
> prevent rumor-mongering
> 4. Pass a Wind-Fall Capital Gains Tax of 65% on ALL short
>
> AND
>
> Revised Tax Rules:
>
> 1. Capital gains under <6 months - 55% tax on capital gains
> 2. Capital gains 6 > 12 months - 45% tax on capital gains
> 3. Capital gains 1 > 2 years - 35% tax on capital gains
> 4. Capital gains 2 > 5 years - 18% tax on capital gains
> 5. Capital gains 5+ years - 5% tax on capital gains
> 6. Most critical of all — Institute a capital gains tax of 55% on
> ALL short sales not directly tied to a long buy by a licensed hedge
> fund. I'm tired of paying for the pure shorts 3rd vacation home.

2009 Oct 29 07:27 AM

[Econ 1]

I don't see how anyone can cheerlead this fantasy market rally (unless your CNBC and your advertisers really would appreciate and end to the gloom!). I just can't get excited about the jobless and revenue-less new normal economy. The only green shoots I see are HEAVILY subsidized by the US taxpayer.

But If you want to re-instate something APPPRO Glass-Steagall comes to my mind before the uptick rule and you so-called "investors" that like to slam Traders (Traitors? piss-off jerk) ought to think where DAILY liquidity comes from--here's a hint: when you buy-n-holders want to sell your granpa's IBM stock that's been in your underwear drawer for 35 years you will get a fair price for it thanks to the price discovery of active traders that day. Short sighted jerks that don't have clue about market mechanics pisses me off (can you tell?).

2009 Oct 29 08:23 AM

[apppro]

Your comment is right - WE ALL 'created' it, but the shorts 'caused' it to burst in way that was unwarranted and just destructive. Creative destruction has the connotation to it that something will be created out of the destruction, what this recent group of shorts did was to destroy just for the sake of destruction, and with NOTHING in mind to rebuild or replace it. Their 'trickle down' turned into 'pissing away'.


On Oct 29 07:27 AM greaterdepression wrote:

> Yes, the shorts created the Delusional credit bubble.
> Enjoy the Crash.

2009 Oct 29 08:25 AM

[Old Trader]

It seems to me that the technical indicators are finally catching up with the fundamentals. I'm not surprised to see the market bounce today (at least, so far); the question is...will it (the bounce) last?

2009 Oct 29 11:12 AM