Securities Research Services

Thursday, May 24, 2007

Bears Receive a Catalyst

One or two distribution days does not necessarily lead to a correction. However, when distribution days start to pile up, it makes it more and more likely that a correction is about to get underway. This is the case here. We have seen at least 4 distribution days in the past week and a half.

Most notably is the fact that the S&P 500 has tailed off into the close over the past three days now. Likewise, the QQQQ, which broke out earlier this week, is now failing miserably. As you know if you have been following, we haven’t trusted the QQQQ breakout from the start. Primarily because volume was weak and because we couldn’t find evidence that underlying stocks were moving up with the index. This told us that quiet distribution was going on under the cover of rising index prices.

Yesterday’s comments from Greenspan gave sellers the trigger they had been looking for.

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