Friday, April 07, 2006

Rates Weigh Down the Market

Well, forget about this being bullish - even temporarily. The market is losing momentum, and all these hyperbolic charts are looking sick.

The interest rates are starting to weigh on the market. A number of weeks ago I pointed out that the Utilities were going to get smashed, and they have been. The head & shoulders pattern is crystal clear now.

The reversal today was extraordinary. Below is the Russell 2000. The open was a new lifetime high on this index, and the close was substantially below it. The portion rectangled in red is the "churning" that's been taking place above the former resistance trendline. It will need to smash below this decisively to clearly be bearish.

We've had good luck with Autodesk a couple of times before, so let's try for a third. This is pushing up towards a medium-sized resistance line. I'd say short this and stop at any price above $44.

We've also been watching Genentech for a while, and it's finally broken its neckline. This is a pretty massive pattern, so it's fairly promising, especially considering the poor performance of biotechs over the past few months when the market as a whole has been pretty strong. I'd suggest shorting this one, stopping out at any price above $89.91.

Have a good weekend, everyone!


John Wheatcroft said...

As much as I too desire the market to take a rest I'm afraid Helicopter Ben is not going to let that happen.

Anyway the VIX hit what my personal fear indicator calls "oversold" and from here it either takes a one day jump to "way oversold" in which case we are back to churn on Tuesday or we are back to churn on Monday.

Watch the internals on Monday A.M. and if they appear to be going in favor of your trade (either way) be ready to act. (For you Tim that would be declines leading advances plus a negative tick - we knew you weren't really coming in out of the cold)

Great Blog - keep up the good work.

Kapil Khanna said...

Need more volume on the downside, its just not showing up yet. Weak bulls are booking profits. Will keenly watch the coming week.