Top Gun FP Client Note: The Market Is Technically Broken

May 21, 2010 at 10:33 am  ·  Category: Market Commentary, Technical Analysis, Top Gun Financial Planning

NOTE: Every week I write a Client Note for my clients.  For a limited time, I am allowing non-clients to sign up and receive the Client Note.  You can sign up at the top right hand corner of the website.  I will also be posting the notes on my blog with a 24-48 hour delay from time to time.  Here is this week’s.

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Two and a half weeks ago, veteran Wall Street Journal reporter E.S. Browning consulted with some of the best market technicians (“Technical Analysts See Room To Roll”, E.S. Browning, The Wall Street Journal, April 26, C1).  Paul Desmond, Phil Roth and Tim Hayes (of Ned Davis Research) were uniformly impressed with the markets technical strength and called for more gains in the immediate future. 
 
They noted the outperformance of small caps, the number of stocks hitting 52-week highs, the volume of stocks trading on advancing versus declining volume, the percentage of stocks trading above their 50 DMA, etc…
 
“There are no signs that the market is about to embark on a sustained decline,” said Phil Roth, Miller Tabak’s chief technical market analyst.  “Those are pretty strong numbers.  It means we aren’t in immediate danger,” said Tim Hayes, chief investment strategist at Ned Davis Research.
 
There was very little warning at the time of the complete technical breakdown we were about to experience.  Only 19 trading days later, the S&P has dropped 135 points (11%) breaking through its key 200 DMA around 1100 this morning. 
sp-1-year-chart
 
Significantly, the selloff has been on powerful volume.  In the 24 trading days beginning Friday April 16 through yesterday, average NYSE composite volume has been 6.6 billion shares.  That compares with 4.8 billion shares for the first 71 trading days of the year through Thursday April 15.  Alternatively, average NYSE composite volume is up 38% since April 16 compared to the first three and a half months of the year. 
 
For the year as a whole, average NYSE composite volume on the 38 down days has been 5.8 billion shares compared with 4.9 billion for the 57 up days, or 18% higher.
 
The sellers are currently in control and the years closing low around 1050 is in sight.
 
The market chatter during the selloff has been all about Greece, the PIIGS, Europe and the Euro – down 17% versus the dollar over the last six months.
 
Paradoxically, first quarter earnings reports have been explosive.  Cisco (CSCO), Hewlett Packard (HPQ), Lowe’s (LOW), Home Depot (HD), Target (TGT) and Walmart (WMT) all reported earnings in the last week that suggest a booming economy.
 
I wonder if the market is signalling that the massive doses of monetary and fiscal stimulus administered by The Federal Reserve and The Federal Government have run their course.

YTD Returns (through 5/14)
S&P: +1.85%
DJ Total: +3.30%
Top Gun: +0.37%
 
SPECIAL OFFER – FREE INVESTMENT REVIEW: For a limited time I am offering a free investment review.  Pick any stock, bond, ETF or mutual fund.  I will do a comprehensive fundamental/macro/technical analysis, write a concise analyst report, and consult with you for 30 minutes by phone or in person for free.
 
Greg Feirman
Founder & CEO
Top Gun Financial (www.topgunfp.com)
A Registered Investment Advisor
9700 Village Center Dr. #50H
Granite Bay, CA 95746
(916) 224-0113
 
CALL NOW FOR A FREE INVESTMENT REVIEW!
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