Week Ends Mixed

The week ended very, very mixed. If you have been following along you know that distribution continues to take place as the market attempts to climb higher, especially in the Nasdaq. At the same time the Dow continues to threaten a breakout to new highs and a rotation back into the semiconductors appears to be a real possibility. The fact that the Dow is showing strength is forbidding for longs since it implies that smart money is shoring up their defenses by moving into the safer, more heavily traded blue chips. The reasoning is that if the market does shake lower it is much easier to move a lot of money out of large float, heavily traded blue chip positions. Meanwhile support in the chip sector is puzzling when compared to poor action in broader tech. The Nasdaq 100 continues to trade in a nasty head and shoulders pattern and the Tuesday's attempt to nullify the pattern was met with a barrage of selling that led to an ugly intraday reversal. Even so, the following day bulls stepped back in and defended support at the bottom of the right shoulder. 1660 is the bottom of the range and a break below would surely take the wind out of the bull's sails. Likewise, a strong move over 1700 would indeed nullify the bearish pattern and keep the long term trend in tact. With the chips perking up here and given the fact that next week we should experience the traditional end of month buying there is a good chance that bulls will be able to nullify the pattern. Supports are thus far holding, but nevertheless, this is a market that just doesn't feel very strong. We have witnessed a great deal of subtle distribution as stocks continue to get chopped when they trade at the upper end of their ranges. The Dow continues to reveal a flight to safety (realize that institutional money makes up the vast amount of trading volume in the market and it can take weeks for them to set up their positions). Tops in markets are very difficult to predict and prices can continue much higher than it seems logical sometimes. Nevertheless this is a time to tread carefully and a time to either set up short hedges along side your long positions or a time to build up cash positions that allow you to take advantage of the market's next move whatever it may be. Low volatility choppiness that we have been experiencing for the better part of this year is going to lead to high volume and a large move of some sort. Either money that we can't see right now is going to come off the sidelines and bust through this heavy level of resistance the market is now faced with; or, the market will continue to drift precariously higher on light volume leading to a very dangerous situation; or the market will heavily roll over from current levels. Have no doubt though that something big is afoot. Note: Due to a heavy travel schedule this weekend we will not be putting out a report on Monday. We will be back to our normal schedule on Tuesday.