The recent bleak market action continued despite a deceptive positive day in the DJIA.  Breadth deteriorated all day and damaged sectors which we would normally like to see lead the market higher, such as semi-conductors and other technology stocks, continued to trend lower. Retailers showed a small pulse today which is encouraging and bio-tech advanced after Genentech (DNA) issued solid earnings after last nights close.

Oil stocks that have been trashed since the month began finally found some bids and moved higher. The big jump in crude helped the group, but obviously is not a positive for the broader market. Gold also resumed its march higher, something we do not like to see.

While we consider ourselves realists, we also are optimistic that poor action like we have now will lead to some very good trading action in the near future. Things are very bleak and it is helpful to focus on some of the optimistic data in contrast to all the negativity. On a positive note, after issuing an earnings surprise, Gennentech (DNA) held its gains fairly well which is  an indication investors weren’t too concerned with booking quick gains and an escape to the sidelines.

Today’s action was very mundane and traders spent most of the day waiting for the FOMC minutes from September 20^th. We saw a small ramp in the markets ahead of the report, which is almost always a sucker bet, and after the report was issued the market fizzled and continued its lackluster action.

We suspect that the pessimism is becoming powerful enough to create a tradable bounce, and we are looking at the technology sector, as this area has been the hardest hit. Tonight’s earnings report from Apple Computer (APPL) should set the tone for technology stocks at least in the short term. A weak report may actually help us bottom out faster than a good one. 

Investors and traders typically have an inherent desire to buck the trend, attempt the big trade and jump into a falling market. It is important that we remain cautious and stay away from this gunslinger attitude. After today, all major indexes are trading below their 50 and 200 day moving averages which is very dangerous area. Many earnings winners have been beaten up, and do look attractive, but it is important to not deploy all your capital if you are going to begin purchasing these shares.

Playing the seasonality hasn’t worked this year, and it seems as if everyone is anticipating a bottom in October and a strong rally into the end of the year. Unfortunately, only time will tell and if a better environment does come, you will have plenty of time to participate.

RevShark