As Pullback Scares ‘Em Out, I’m Lying in Wait
February 21st, 2006 by BWV
This morning’s Leading Economic Indicator index came in strong.. and that set the tone for the day. For now, any good economic data is bad for stocks — because more than anything the big money players just want the Fed to quit hiking rates. And it will take decidedly negative data for Bernanke to veer from his inherited “measured pace” mantra.
With the Nasdaq 100 Tracking Stock (QQQQ) closing down 1.2%, I sense a little panic out there now. The Nazz hasn’t made new highs since January 11th, and I can promise you those fleeting moments have been completely forgotten by the momentum chasers.
Still, the QQQQ index remains confined in this little wedge.. and now sits at support levels. Textbook technical analysis would classify this as a Descending Triangle.. a bearish pattern. But for me that’s just too obvious to the trading masses. A good reversal day very soon would set this market up to really punish the late short-sellers who saw this pattern “confirming” itself.
As for the DJIA? Today’s little 46 point decline is meaningless. The senior citizen of indicies is just hanging around.. above the 11,000 level that held it back so many times in the last 4 months. Nothing bearish about today’s action there.
The primary red flag here is the supreme outperformance of the Dow during February that is so evident in the two charts (Just look, it’s blatant). The mega-caps that make up the Dow tend to rally very late in the overall up move… as people who missed out on all the huge small-cap gains latch onto anything that hasn’t moved yet.
If the Nadaq and S&P 500 can’t catch up to the Dow, we could have some trouble. That’s a distinct possibility seeing that the S&P is overweight Energy stocks and that the Nazz is overly influenced by lumbering behemoths like CSCO, INTC, ORCL. These type of crosswinds are why I prefer to take it (nearly) one day at a time.
My tentatively bullish comments do not mean I’m in there buying hand-over-fist. I will not heavily commit to this market until we get some kind of intraday washout and then evidence of a turn upwards. My halfhearted guess: That turn is likely to occur this week.
Current portfolio stats:
.36 Leverage.. amount invested.. (longs+shorts)/equity
31% Long.. net stock exposure.. (longs-shorts)/equity
That tells more about my opinions than any words I could write.
