Saturday, October 20, 2007

Nasty, but one strike does not kill a bull

Yes, Friday was ugly - but "Black Friday" doesn't really have a ring to it and volume - although higher - was not a fearful capitulation. The indices do have their problems, not least those of the semiconductor index and Transport index which both suggest a weak economy:

The semiconductor index is threatening long term lows which runs contrary to that of the parent Nasdaq indices and the Transports have created a classic failed breakout and counter breakdown. Given both of these indices were a long way from confirming strength in the Nasdaq/Nasdaq 100 and Dow it should have been of no surprise to have seen a day like today:

Factor in "Death Crosses" for the Transports and Small caps and you have a recipe for trouble:

What happens at August lows (should they be tested) will be interesting as internals did confirm this low as a major bottom - a break of which would go a long way towards confirming the start of a cyclical bear market withing a secular bear market. This will not make for pretty viewing. Bulls will have plenty of opportunity to stop such events, but with the semiconductors breaking fast they will need to step up to the plate soon.