Weaker Underpinnings

Sometimes I write about the market and say that it’s stronger than the indices would lead you to believe.  Other days, I’ll write that despite a big jump in the indices, the internals were very weak.  Today, the Dow Jones was up 50 points and it looked like a mediocre day.  Yet, when we look under the hood so to speak, we see that volume was a little higher than yesterday (still low), and sellers were pretty active.  In fact, 75% of the volume was down volume on the NYSE.  Obviously, markets have good and bad days and one day doesn’t make a trend.  But, this has happened more frequently lately.  I call them negative divergences.  Sometimes, negative divergences show up in charts and sometimes they show up in the internals.  Lately, it’s been the internals.  Technically, the market’s looked fine and only looks like if it pulls back perhaps it’ll do so mildly.  Maybe 8200 on the Dow.  That wouldn’t even be considered a correction, just vibration.

As far as the Nasdaq, it’s been noticeably weaker in the past few days on  a relative basis compared to the S&P 500.  The Nasdaq had been ourperforming the S&P 500 all of 2009 until May started.  I”ve been warning many investors to watch for a reversal potentially when the market “breaks out”.  The Nasdaq went above its 200-day moving average and that caused a lot of investors to jump in.  But, often that’s just the time when markets reverse, after they’ve broken out.  I discussed on my radio show the exact opposite scenario back in March when the market “broke out” and went to new lows.  I said at the time that markets often reverse where technically it makes no sense.  Keep an eye on the Nasdaq.

I still believe building cash is the most prudent thing to do right now.  At the same time, without significant pullbacks, continue to look for areas where money is flowing.  Natural gas continues to move higher.  I feel like I’ve been talking about this for several weeks when it’s really only been about 9 trading days.  But, it’s had such a huge run during that short time, it’s getting noticed by others.  You can see that simply by the increase in volume.  Without real intense selling, money seems to be shifting from overbought areas to underowned areas like natural gas.  I’m going to spend a  lot of time tomorrow looking for undiscovered stocks & ETFs where money may rotate into.  I’ll report on those soon. 


Tomorrow, I have a few national television appearances.  You can see me on at the following times:

CNBC – 7:00 a.m. CST
Fox Business – 8:10 & 8:30 a.m. CST
CNBC Asis – 6:10 p.m. CST


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May 2009
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