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For Monday March 5, 2007  

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Dow -120.24 at 12114.10, Nasdaq -36.21 at 2368.00, S&P -16.00 at 1387.17

I read on Yahoo so maybe written by briefing com "The major averages closed sharply lower Friday amid growing fears of a liquidity crunch and worries that sub-prime mortgage misfortunes will spread into the broader economy."

I wonder if in reality mutual funds and and other commercial interests or if the retail public was was actually selling as a result of any of the two reasons above. Maybe some figure it is the top and those reasons are added things for worry about but  will bet $5 that a bigger reason the markets closed lower was weekend fear after a big drop this week Do not what to greet Monday with another China News sell off so better to sell down positions and for individuals to go home flat.

I do not know where to get current information on how much of the trading now is program trading. A few years back it ran up as high as 70% and more recently I read it was near 35%. This is trading based of algorithms so that if certain things happen  it triggers selling or buying  of baskets of stocks and or options etc. These setups can work or they can move the market enough to trigger someone else's program that may yet again change the situation. It seem to me that technical aspects play a much bigger role in trading then ever and when the indexes broke 7-9 month trend lines there was a flood of technical selling taking place. News and sentiment is of course important and market changing but "fears of liquidity crunch and sub-prime mortgages" do not spring up overnight. I thick the news can fit the market better than the market fitting the news. Has there ever been a day when the media has not been able to give a reason for what the market did on any one day?

I think the market closed lower because we are in a pullback and it is nearing support and needs to test it to see how strong it is. That, however does not make for interesting headlines. We will show the situation when we get the the charts.

All the majors ended lower for the week at least 4%.

I did not mean above that the sub-prime situation and other things are not important but only that they are not new concerns really. I read that U.S. regulators are demanding tougher standards for sub-prime adjustable-rate mortgages. They think of these things a bit too late.  Countrywide Financial recently reported that delinquencies surged 19% last year. But the US economy is still strong and stock prices not in most cases extremely high.

The ISM’s manufacturing sector purchasing managers’ index was stronger than was expected. The headline index rose above the break-even level of 50, rising to 52.3 in February.

 Several times this year we have seen tires on the winning sector list but have not bought the stocks. We had pointed out Forestry earlier this week. Here are the sector winners and losers for the past week.

The stats are in and if you bought all the stocks that triggered using 10% of your money to invest on each stock and sold all of it at the close on the first day (total mechanical trading) you gained 38% in February. That is down from the 44% in January as a few that had intra day gains this month pulled back near the close. So total for 2007 so far is 82% and that is without the risk of holding over night. The key is to buy all the stocks that trigger and use an equal amount of money in each trade. We never had more than 10 in one day. If you are not up 84% this year you are not following the plan. We will put up the full list of trades using the closing price by next week as the gains were much higher if you sold at the high of the first day instead of the close.

The Dow is pretty close the the 38.2% retrace and it should be good support but if it does go down under it in an intraday move to tag the 200-day would not be a surprise and actually maybe a good thing as it clears up loose ends. To me is a a bit like filling a gap, once done the stock or index can often just move on.

So the chart points out the support that it conveniently also the 38% and note that stochastics is at 20 and RSI a bit under 30 so a short time in this area and maybe a bit lower and set things up technically for a nice move back up. In a quite typical decline the drop may be labeled A and the rally back up when it comes B then we could see another drop to C which may or not be lower than  A. I like the RSI and stochastics and when they can cross back up over 30 and 20 expect a decent rally.

The transportation index that was looking so hot a week ago has sure changed its face. It is though now near one of two trend lines. The lower line would have more support as it has more touches and it is also at the 200-day EMA.

The Nasdaq broke its horizontal support and closed under it on Friday but still above the 200-day and 38.2% retracement so a normal correction so far. If those two were to be broken the dotted line is also support.

Once again the BP Compq has fallen under the 20-day EMA and that is not good to see as it could signal a longer term trend change. However, notice that it fell below also in a sharp drop last March but bulled back above in not much time so we hope it can do it again.

The NASI is still above the trend line even after the big drop - and this is encouraging even though this is a slow reacting ratio.

The SMH semiconductor chart is also not so bad looking as it never had a failed break out. It had gone to the top resistance and is now getting near to the support again and volume has been lighter than on its one big up day. Still nothing broken here.

The NYSE which is actually more important than the Dow as it has all the NYSE stocks in it dropped below the 38% on Friday. It did not go below the intra day low from the day before so maybe it can soon recover. I think it should not go below the 50% so not to the 200-day EMA. Note on this chart also the RSI and stochastics getting to oversold levels.

The longer term view shows that the lower cannel is at 8800 or roughly the 50% retrace on the above chart so we may still have to see that level. The vertical lines are only to show a few of the major turns.

The percentage of stocks above their 50-day average has now dropped to 36.85%. When we had the pullback in early 2005 it stopped dropping at 35.86 so this also may signal a bounce soon to come.