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Recovery But . . . Not So Fast March 7, 2014

Posted by Tom in Thoughts.
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As you recall, last Friday was a big “down day”; that didn’t last long.  The Russians invaded Ukraine but by Monday the market tended to shrug it off; it didn’t look like it was going to get worse than Crimea.  OK, so much for that.  But wait, not so fast.

Take a look at the chart below.  What do we see (hint: blue circle)?  Yep, right after “Recovery Monday” gap up we see 3 days of very narrow range bars, on somewhat average volume.  Wyckoff would say there was “effort” (volume) but not “ease” of movement (price movement).   (click on graph to enlarge)

NASDAQ

At first one would think that traders were waiting for the Friday Jobs Report.  On Friday the report was fairly positive (179,000 new jobs with 139,000 expected), but Friday was rather soft.  It looks like my green “Bull” scenario played out, and for the most part it has, but I’m still not happy with this advance.  Those narrow range bars indicate (to me) that whatever buying was coming into the market was being absorbed by nearly equal amount of selling and Friday tipped over to more selling.  Now if it stops here, that’s OK.  After all, we are at the upper end of that purple channel so I’d expect reluctance to break up through the top of it.

Another item that caught my eye:  Usually when I have money to re-invest I run a scan to prospect for candidates.  Right now there really aren’t many strong ones.  There are less than half of what I usually see and those are somewhat marginal.  Don’t get me wrong, I’m not pulling out, but I’m also not comfortable enough to use some of that Cash to invest right now.  Many of the sector leaders of the past 2-4 months have now weakened.  A rotation?  Perhaps.  Or is the CO / Smart Money in Distribution?  Right now, the general market is not confirming anything dire, but I’m watching for sector strength coming out to replace the old guard.  If not rotation,then we may be in for more weakness, and there are enough nervous folks out there to make it a sudden change.  By mid to end of next week we should get some indication of the move.  Either confirming the Up or a trip back south.

Note in the Top Sectors table below the absence of Biotech, Pharma and Healthcare; they were our previous leaders.  Now it’s Semiconductors, Transports and some Internet and Energy.  This bears watching (no pun intended).

Sectors

Have a good week.            ……………  Tom  …………….

chart by MetaStock; table by www.HighGrowthStock.com ; used with permission.

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