As we noted yesterday, the action we saw over the past 2 days was a text book example of a dead cat/oversold bounce that could not be trusted to last.  The markets bounced on light volume and the Nasdaq met resistance right at the 50 day moving average. Today the markets fizzled with every major sector flat to down except for some signs of life from bio tech. Volume was anemic and breadth was a solid 2 to1 negative throughout.

We suspect that market participants are attempting to digest the data and awaiting the upcoming earnings announcements. The producer price index was released today and showed strong signs of inflationary pressure. Backing out energy and food prices, core PPI was a tamer .3% but there is wide disagreement over how accurate these numbers really are.  The Federal Reserve board has already made it quite clear that they are worried about inflation and this data lends weight to the proposition that they will continue to be hawkish  Sooner or later the market will price this in, but the timing is the million dollar question. .

Intel (INTC), Yahoo (YHOO) and Motorola (MOT) are 3 big names reporting earnings tonight, which will definitely set the tone for the next several trading days. Expectations are relatively low and some good numbers might help. Unfortunately the technical picture of the major indices simply doesn’t support much upside at this time.

Stay patient and let things play out. Don’t let the pundits entice you into bottom fishing in these very murky waters. When the market starts to act better there will be plenty of time to put your cash to work.

Have a good evening. 

RevShark