Securities Research Services

Tuesday, July 25, 2006

Recovery Effort Weak Thus Far

Sentiment did indeed keep a floor under the market yesterday, but the bounce has thus far been uninspiring. What we are seeing so far is more indicative of consolidation as stocks work off their oversold conditions by trading in a narrow range than it is of a recovery effort. After such a steep sell off, we are quite likely to see at least one more wave down before sellers decide to take profits and buyers find the nerve to reenter the market in force. Our projections show that we could see the QQQQ drift slightly higher over the next week or two, while the blue chips trade in a sideways range. Unless we see serious volume come in and see an upside breakout that sticks in the blue chip sector, we need to call a club a club and admit that we are still in a downtrend. What does that mean exactly in practical terms? It means that rallies should be sold and that stocks should not be chased.

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