Here we go again

Stocks tumbled late yesterday on concerns of higher interest rates (again), a computer glitch at the American Stock Exchange, and some trouble in the hedge fund industry.  It all added up to a late 100 point decline in the Dow sending all of the major indices down over 1%.

From a technical standpoint, if this decline continues we would have seen a failed attempt to make a new high.  A move below the low made earlier this month would form a "double top."  As of now if the S&P 500 can stay above the support line, which is also sitting on the 50-day moving average, the market could be OK.  But there is certainly reason to be concerned if that fails.


                                 Chart provided courtesy of www.decisionpoint.com

 

A closer look at yesterday's action shows us that we also had an outside day formation yesterday with a close on the low end.  Here is a definition of an outside day per spectrumcommodities.com: Outside Day: An outside occurs when one day's high is higher than the previous day's high, and its low is lower than the previous day's low. This is often taken as a signal that the market is about to make a move in the direction of the close.

The NYSE overbought/oversold indicator has headed down again, also putting in a lower high.  I have mentioned before that the intermediate action of this indicator can move in one direction while the market continues to move in another.  But the market tends to eventually dip before the indicator bottoms out, as it did the first half of 2006.




Yesterday the AGG (F-fund) gave back all of Tuesday's gains and this bounce back in interest rates is being blamed for at least some of the selling pressure in stocks yesterday.  The yield of the 90-Day T-Bill has risen since I talked about it on Tuesday.  However, it is still more than 10% below the Fed Funds Rate and if that holds for another week, the Fed will have an interesting decision to make at next week's FOMC meeting.

The dollar was up slightly finding support at the 20 and 50-day moving averages.  Oil was down nearly $1 a barrel to $68.19. 

The EbbChart System is in F-fund today but will make another interfund transfer this morning.  Read more on the ebbchart page.

Yesterday I mentioned that Trader Fred's TSP Trader System was sensing a one-day 1% or more move by the end of the week.  Fred, who isn't into guessing, said it could be Thursday and based on the fact that all of the submodels are currently out of the market, he suggested it could be to the downside.  The move came a day early but of course we don't know what will happen today. Read more from Fred on the system page.

Bottom line is that we have been here before.  We have had down days, we get excited about the possibility of a long-awaited correction, only to see the market jump back up almost immediately.  At the risk of missing out on gains, this is the type of action that needs a good defense on the field until we see something telling us otherwise. 

The sentiment surveys have been mixed with the AAII overly bearish (positive for stocks) but the Investor's Intelligence survey is showing complacency (negative for stocks).  Our survey is going on today on the home page.

China regained almost the entire recent drop, but like the S&P 500, it has not broken out to a new high and is in trouble of forming a double top itself.  But it's too early to tell.

That's all for today.  I am currently 100% F fund.  See you tomorrow!