My outlook remains bearish. We have a holiday shortened week but a quick review of last week’s market is revealing. Last Monday (5/18/2009) we had a large gain. During the week, this gain was retraced in its entirety. That, in and of itself, is not all that unusual. However, the manner in which it happened does not bode well for the general market averages.
With the exception of Thursday (5/21/2009), the popular averages started each day out higher. As each trading session progressed, sellers took control and prices dropped. Looking below the surface, what this means is the upside momentum has been arrested.
Markets that start out strongly and then decline are bearish. Market participants are selling the rallies, not buying the dips as we have seen since the March 9, 2009 “intermediate” bottom. These are all signs that the rally we have witnessed smacks of massive distribution. Market makers and specialists selling out stock accumulated at or near the March lows and almost record corporate insider selling. How else can this be done except into rising prices? That was accomplished by Goldman Sacks, Morgan Stanley and JP Morgan by aggressively hitting offers on ever decreasing size (thus the lower than normal volume).
One can also speculate that this rally was engineered for the purpose of creating a climate for the successful equity offerings of the impaired finacial institutions we have just witnessed. An analysis of the various sectors show that only commodity based sectors (most especially the precious metals) fared well last week. It is also of note that we had a small change reading Friday (5/22/2009) on the McClelland Occilator which alerts us to the high probability of a major move in the popular market averages within two trading sessions.
DOW numbers to watch are 8,574 (its recent high) and 8,002 (50 day moving average). My perception remains that this has been/is a major rally within the confines of an on-going bear market. Got puts? But stay alert and stay nimble.
