Bear market stocks, such as banks, financials, home builders, and retail broke lower yesterday even as major indices held support. This is not a good sign for the overall health of the market. It indicates that the market is under severe distribution and that selling activity is being masked by somewhat stable index prices.
The S&P and Dow have both experienced a series of lower highs and lower lows indicating that they are in the first stages of a bear market. Even so, yesterday prices in these indices refused to break lower, so we are likely to see some sort of a rally before they actually break down.
Likewise, the QQQQ held support.
Our read on this situation is that while the intermediate term outlook suggests lower prices ahead, shorter term, late comer shorts may get squeezed as those with the prescience to sell last week take profits.
Market indices are heavily testing support levels and it seems likely that the last line in the sand will soon give way. That's not likely to happen until stocks regroup a bit. In other words, focus on shorting any rallies here, but don't chase prices lower here as you are likely to get burned. And, most importantly, don't try and buy any downtrodden stocks. These stocks are likely to frustrate buyers as they wear them down by constantly bleeding lower.
Meanwhile, we have a full blown bull market in the oils and oil prices are getting ready to challenge the $100 per barrel level. A strong underlying bid is occurring in stocks like XOM and CVX.
Jim Cramer is famous for saying "there is always a bull market somewhere." We aren't sure this is entirely accurate, but it is certainly accurate now.
BTW, the Japanese market is down a whopping 4% today! This following several 2% down days. Ugly business this.
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