The sellers continued their rout on Friday. The NASDAQ closed the gap just above the May lows and is now just a few points above the May closing low. There are still about 20 points to go for it to reach the May intraday low and even further to fall to reach the bottom of the trend channel it’s been locked in for months. Friday’s selling made the S&P 500 close under its 200-day moving average for the first time since April of 2003. So now all the major indices are under their 200, 50 and 10 DMAs. (That means the the long, intermediate, and short term trends are all down.)
There’s still a slight chance that the NASDAQ can make that inverse head & shoulders pattern that I talked about the other day, but frankly, I can’t see it happening. I think it’s much more likely that it takes out the May low before getting a serious rally attempt. I wouldn’t be surprised to see what I call a big ‘whoosh’ day (I think I got that from Jim Cramer) in the near future. That’s a day when people are just dumping stock hand-over-fist.
I decided to go back to cash late on Friday. Although I was still showing a profit on the few longs I had left I didn’t want to press my luck anymore. If I’m correct about having that real ugly down day I certainly don’t want to be long through that. Also, I usually like to be on the sidelines during the heart of earnings season. So that’s where I’ll be. I may try some day trades this week but I won’t be holding anything overnight.
I’ve been watching the Dow transportation index the past couple weeks, and it hasn’t sold off nearly as strongly as everything else. In fact its long and short term MA’s are still strongly positive.
So I wonder what it means when the trannies aren’t selling off like everything else. Anomaly, or hint of a big rally ahead? I keep thinking back to the huge selloff in the trannies right after the first of the year seeming to offer a preview of the general selloff that followed.
I also wonder why we’re getting no VIX spike in the midst of this selloff.
Maybe it’s just the summer doldrums causing everything to not make much sense?
I’d like to believe it’s more than just the summer doldrums, but I couldn’t say for sure. I have noticed that the selling is not as broad-based as it feels. I think the market will reveal its true colors on the next week or so.