Tuesday October 23 2012
An alert reader sends us this conclusion by Tom DeMark, he called a top September 14, we exited Sept 18 not knowing about his call but doing the right thing.
After the 243 point DOW drop yesterday, a few observaitions.
The high Tech NASD and small cap stocks are seriously underperforming their big brothers. The move to tablets has hit semi conductors and computer makers hard.
QQQ Over the Counter Stocks, High Tech
QQQ broke through resistance at 65 in August, now it is coming back to test the break out. This will be significant. The 200 day MA looks to be tested and still has QQQ in an uptrend. In the lower panel MACD is much lower but has yet to bottom.
Internal Indicators have not reached the kind of oversold conditions that flash a good buy signal.
Daily High Low
The daily high low has fallen to a new low taking out the MAs and an uptrend line from the May liow. but again it has yet to bottom.
NYSE Advance Decline Volume
The Advance Decline Volume has made a lower high in September than the previous high in February. And it has broken its uptend line. Longer term MAs have gone flat. Taken in conjunction with the vertical rise in VIX shown next, one has to ask, are the highs for the year in?
Breakout in the VIX
We have noted the quiet move up in the VIX and stated it was broadcasting lower stock prices. It exploded to the upside through its moving averages yesterday.
The ribbon of moving averages is broadcasting a much more important low now than the one in March. Now the MAs have converged and all been broken in three days trading. VIX exhibits a saucer shaped bottom as it did in March. The strength of the move up is confirmed by a much stronger RSI in the lower panel. VIX is one point short of its high at 21 in April. Coupled with the lower MACD readings in the QQQ chart above, this argues for some kind of low in the near future.
We suggest readers look over our charts of MCD and CAT we posted the earlier this week. This 'economy' and stock harket have been buoyed by questionable ventures like Facebook and Zynga. Are we to believe that millions of people playing Farmville and exchanging pleasantries on Facebook constitutes a real economy?
Meanwhile duPont CAT MCD MMM have all topped and headed significantly lower. Every company reporting earnings is cautious. Cautious businessmen laying off employees will slow the economy.
Notice how this world wide producer of just about everyting took out the prior two lows in one day. Lower highs, lower lows, that's a bear market.
Tom Demark may well have created the universal magic indicator shown in the video we linked at the start of this post. Maybe but our experience is that the topping process is better indiccated by lessening participation. The historically bedrock industrial companies are failing badly. Now as one reader termed it, the
Gizmo Bubbble looks about to burst, again see ZNGA. Stroll through a Best Buy and observe all the tablets for sale. Price competition abounds. We reported that brick and mortar retailers are planning to ship from stores battling the on line hooligans. Apple dropped over 3% yesaterday on its announcement of the mim iPad priced over $300. This is how markets transition from bull to bear, segment by segment with most observers in denial that it is in fact happening.
Three of every ten college grads have moved back home.