Thursday, October 1, 2009

We Lost Some Leaders Today

On September 1st, the markets were down hard on pretty meaningful volume. They then sat around for a day, before rallying sharply over the next few weeks. September was a great month.

Today (October 1st), the markets were down hard on average volume. This is now the 6th down day in the last 7 trading days and the down days have been on decent volume. Will the markets repeat September and just magically rally again or have we entered a more meaningful selloff?

International has been the leadership area since late 2008. A lot of Countries broke the 50-day today.

Japan (EWJ) looks the worst, breaking the 50-day and falling lower. The 50-day is important, because it is where the big boys either decide to defend price and buy stock or let price fail and add to the selling.

China (FXI) has also broken the 50-day and is now sitting at trendline support. If the big boys want to pound China, they can do it right here. They can also break it out if they want to. I got stopped in on the failed breakout and may get stopped out soon. We’ll see how it plays out. Either FXI will break down and give me an entry at lower prices, or it will break out and trigger me into more shares above $44. Many Chinese stocks look suspect – CEO, PTR, SNP.

There are a number of Countries and Regions sitting right on their 50-day averages – Canada (EWC), Singapore (EWS), South Africa (EZA). Mexico (EWW) and Hong Kong (EWH) have broken slightly below their 50-days.

Several Leadership Sectors have blown up.

Semiconductors (SMH) got hammered today, breaking the 50-day on big volume. Many stocks in the sector took significant hits today and have broken support – Texas Instruments (TXN), national Semiconductor (NSM), Intel (INTC), Qualcomm (QCOM), Applied Materials (AMAT), Linear Technology (LLTC), Cypress (CY). AMD looks like a pretty nasty top. Remember, the Markets follow Semiconductors, not the other way around.

The Home Builder Index (XHB) broke the 50-day today and is on the verge of a potentially meaningful breakdown. Several Home Builder stocks look terrible – Ryland (RYL), DR Horton (DHI), KB Homes (KBH), Meritage Homes (MTH). I mean they look TERRIBLE.

The Banking Index (KBE) hasn’t broken the 50-day yet, but it is close. However, a number of banks looks nasty today – Bank of America (BAC), JPMorgan (JPM), Wells Fargo (WFC). These are important stocks.

I see a lot of stuff breaking the 50-day. I haven’t seen this in a while and will be watching the internals very closely over the next few days. Several key sectors are getting sold hard. That could reverse tomorrow or continue.

I think the markets will slow their rate of accent and you will see much more money focused into fewer and fewer sectors and markets. This will mean that you cannot buy anything and hope that it will go up, you will need to be able to identify and focus on the stuff that is working best.

Greenspan spoke the other day and said that he thinks 2010 will be a year where the markets just sit around and go nowhere. My experience has been that markets never just sit there. They are either bought because they are going up or sold because they are going down. On net, 2010 may begin and end at the same price, but it will probably have quite a rollercoaster ride getting from beginning to end. Or they will just pound stocks in late 2009 and that will give 2010 a much better chance of decent performance numbers. We’ll see.

If they do decide to ramp the market again, it will probably be after prices sit around for a day or two. I have a small buy list and will do a lot of detailed homework this weekend. I will be looking for what is holding up best, because that is normally what leads when prices start back up again.