Bearing Down

This past week was a nightmare for my record because the markets weren’t responding to candlesticks, the lack of a certain direction made conditions very choppy and worst of all, gangbangers with deep pockets were buying dips at every dip. The internals were getting more and more obvious which was why I stuck to my downside prediction since Wednesday.

Now begs the question … Since July 19;
from a high of 14′000 on the DOW to the current 13′182 is a 6.2% correction
from a high of 1′533 on the S&P 500 down to 1′433 is an 8.4% correction and
from a high of 2′720 on the NASDAQ to the current 2′511 is an 8.3% correction.

… Are we done yet?

Happily, I say no. Look down South for another 4% to 7% and then maybe we’ll be done … that is if the bottom doesn’t fall out and give us our 2007 “R” year. With Real Estate in dire need of a fix, one of the main market drivers out of action means that we have one less Sector Leader to help lift this market. With this Housing ailment, the most influential Sector on the S&P, Financials will also, and is already, taking a huge hit and is definitely out of the running for market leadership.

This leaves only a handful of unreliable market leading potentials in the form of the erratic Technologies industries, the unpredictable Healthcare & Pharmaceuticals, the already suffering Transportation, Consumer and Retail which do not do well in Q3, the overbought Materials & Industrials and the one that should never lead the market … Energy.

In a nutshell … the Bulls are in deep s**t!!

As you ponder the “dooms day” message in this posting, think about this ….

1. We started last year with an Inverted Yield Curve, which very reliably signals an oncoming recession in the next year, 2007. That IYC carried into the start of this year which signifies a soft economy for next year, 2008.

2. Uncle Ben has failed to take a firm stand on a obviously overbought market. And we all know, the market precedes the economy. Thus if this correction doesn’t abate soon, the economy will follow suit and you can go do the math yourself.

3. The market has been running up on lower than average volumes since November 2006 and this correction has brought back volumes not seen since the pre-May2006 bull run. Think about that … running up on low, tanking on high. Go figure.

4. The market has not seen consecutive days of decliners outpacing advancers with new lows outpacing new highs, since Katrina and Rita. Even Shanghai surprise and May 2006 did not have consecutive down stats.

5. The last time the NYSE Volatility Index (VIX) was this high (25 points) was back in April 2004, when the market was recovering from the 2000 recession. You’d have to go back another 5 years to find when it climbed to that level and beyond. And the VIX doesn’t look like it wants to come down anytime soon. Its flying high above all the standard MAs and looks to be gaining momentum with each passing day.

6. The first signs of a slowing economy are already at hand … higher oil prices, slowing employment and weaker consumer sentiments. And lets not forget the mutha’ of all the signals … a really devalued American Dollar.

I guess I’ll leave it at that for now.