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Today's Market WrapUp 08.09.2007 Mon Tue Wed Thu Fri Goldberg Archive Stock
Market Corrections Progressively Shorter in Duration
Since the end of 2003, the S&P 500 has had four corrections ranging in magnitude from 7.5 to 8.3 percent. A 7.5% correction lasted from March 1st to May 10th of 2004. The following spring, a correction of 7.6 percent similarly began in mid March, but it only lasted until April 10th which was less than one month’s duration. In the spring of 2006, an 8% correction again lasted less than a month, from May 8th to June 5th. In 2007 a 6.7% correction began on February 20th and again ended less than a month later on March 12th. If the most recent correction is over, it would have lasted less than 3 weeks. This data is depicted in the weekly chart below.
This market behavior tends to suggest that the pressure to not miss a rally is becoming more and more intense among professionals. This trend cannot last forever, and at some point, what appears to be another short and shallow correction will be something more serious and dangerous. The daily trading volume has been rising progressively and this may be suggesting that a major turning point may be in the making or has already occurred. The recent action in individual stocks will provide some more direction as to whether such a top has occurred. There are numerous consumer and financial stocks where reversal patterns were completed, and many of these are now approaching the necklines of the reversal patterns. Such stocks and their respective necklines include Countrywide (CFC) (30), Regional Bank Holders ETF (RKH) (150), Kohls (KSS) (56), Dillards (DDS) (28), Nordstrom (JWN) (50), Sears (SHLD) 138, J.C. Penney (JCP) (75), Panera (PNRA) (47), Starbucks (SBUX) (30), and Motorola (MOT) (17.5). Bullish signals in the market include a linear uptrend in the Russell 2000 which is still alive and well, and household name Cisco, where a cup-with-handle pattern broke out into new high ground on extremely high volume. The foregoing charts were featured in last week’s article. Today’s Market From the market action today, most of the necklines held up. Still on the bullish side, there were many instances where a piece of good news was sufficient to move certain individual stocks upward significantly. Nordstrom was one example, and Panera Bread was another. Still the action in most retailers was quite bearish as stocks such as Aeropostale (ARO) and J.C. Penney (JCP) were hammered. Today’s action featured a change market in character. That change is a horrible day that followed immediately after several decisively good days. If memory serves me correctly, this has been rare if it has even happened at all over the last 4 years. Usually strong market rallies had to be followed by several neutral days before a significant selloff had occurred. So with regard to today’s action, “this time it is different.” In addition, we are seeing climatic trading volumes which are highlighted in the weekly chart of the S&P 500 below. With one trading day left in the week, it appears likely that this week may see the highest trading volume in S&P 500 stocks ever, surpassing last week’s record breaking trading volume. With this climatic trading volume and a market that appears to have changed character, it is likely that we are at an important turning point in the US market. Still with the level of rhetoric being espoused and believed, and the professional pressure to not miss a rally, one can not discount the potential for a parabolic move to the upside. Such a move would likely first be signaled with a preponderance of necklines reclaimed. Until that happens though, the bearish reversals must be respected.
Finally, to keep upbeat, note the long term chart of Berkshire Hathaway, Inc. Its shareholder base is probably not oriented toward technical analysis…still I cannot ignore the cup-with-saucer pattern that the stock is making. After trying to break out into new high ground the last few days, the stock pulled back today toward its 50 day moving average where a low risk entry may be accomplished.
Have a great evening. Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
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