Securities Research Services

Thursday, May 04, 2006

Bears Growled, but They Have no Teeth (yet)

Yesterday just felt nasty as the QQQQ pushed on support and stocks experienced demoralizing selling pressure. This caused a lot of people to buy put options in expectation of further declines. We said yesterday that a near term floor is in place and yesterday's action confirms this. Yesterday was very likely the dark that occurs before the dawn. The only major index that looks to be in real trouble here is the QQQQ. The SMH performed well and held its ground while the S&P and Dow held their highs. Will the QQQQ break down here? Not a chance. Put options purchased yesterday represent an overly bearish sentiment and the Qs are trading right at the support line on the trend that started three years ago. The market is weak here, but that support is not going to give way on the first attack. If today starts out weak, look for a strong intraday reversal to take place as support buyers step in and buy the weakness. If the Qs do break support today, the market is much weaker than we thought; but don't bet on it, at least not yet.

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