Tuesday, April 27, 2010

Daily Market Commentary: Don't Fall for the Red Herring

January was the last time markets experienced the kind of selling seen today. The usual suspects were rolled out as explanation, but the troubles of Greece, Portugal or Goldman Sachs are nothing new and last week's breakouts were achieved on the back of such issues. Today was a follow though from yesterday' selling, a cascade of profit taking as last week's breakouts ran into trouble.

The fundamental issue at stake is not the debt of Portugal, Greece or Ireland, but that of Spain or Italy. The dominoes have started to fall and it's only a matter of time before the "rating agencies" strike a pen through the credit worthiness of Italy and Spain. Putting together a rescue package for either of these economies within the confines of the Euro will be a sticky wicket. But that's another day's story and one which will hurt the markets much more than Greece did today.

Bringing things back to today there was a number of significant bearish developments, but large one day losses like today's tend to recover a little over the following days.

For the S&P there was a confirmed distribution day on a clear slice of the 20-day MA. There was also a bearish cross between +DI / -DI directional index. The 50-day MA is looking very attractive as a downside target, particularly for shorts looking to get aggressive on the relief bounce back to the 20-day MA.

($SPX)

via StockCharts.com

The Nasdaq was an odd mix of support at the 20-day MA but a confirmed break of the February trendline. Volume was a registered distribution day, but not to the extent of that for the $SPX. There was also fresh 'sell' triggers in the MACD and +DI/-DI.

($COMPQ)

via StockCharts.com

Small Caps managed to hang on to rising support but could struggle in the face of breaks in other indices. Here too were 'sell' triggers for the CCI and MACD.

($RUT)

via StockCharts.com

The Nasdaq 100 is another index clinging to support with a 'sell' trigger in +DI/-DI

($NDX)

via StockCharts.com

And the semiconductor index holds support but with three technical 'sell' triggers in the one day.

($SOX)

via StockCharts.com

Markets look ready to push back to 50-day MAs as an initial test. What has been a rising tide for all stocks looks ready to shift into sector rotation mode - a trickier, yet still profitable time - for stocks.

But while markets price in Greece & Goldman the real trouble is down the road. Get the hard hats ready.

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