General Market Analysis: 6/6/06

A copy of the general market analysis I posted on MSW last night:

Every stock listed on the MSW Index was down today as the group fell 3.8% collectively with several doing so on above average volume. Sterling Construction (STRL) dropped the most with a 14.84% decline on volume 163% larger than the 50-d m.a. The two stocks that advanced yesterday, DXPE & LQDT, caught up to the rest of the field by dropping 5.53% and 8.17% respectively. The market is getting its ass kicked! Not the type of language I typically use but I need to make sure that I have everyone’s attention. I started to pull the community to the sidelines in early May and accelerated my campaign to cash throughout the month. If you are still being hurt on the long side by the recent declines, I suggest that you find something else to do with your money before it’s all gone. Every single indicator that the market has to offer has been telling to you to raise cash and move to sidelines until skies clear. If you are experienced enough to short stocks and play to the downside, excellent, but still use caution because this market cannot be trusted in either direction. It’s tough to just sit here and do nothing since I have been back from vacation but I am not crazy, I don’t like to lose money for no good reason other than boredom.

Looking at the broad market, we see the DOW fell to its lowest levels in months with a 16.1% increase in volume for another pure distribution day. The NASDAQ fell in higher volume to confirm a double bottom breakdown but it did attempt a rally towards the late afternoon (a strong final hour of trading). The NASDAQ remains below its 200-d m.a. as the DOW is above the long term moving average (recently fell below its 50-d m.a.) with a spread triple bottom breakdown confirmed on the point and figure chart today. The NH-NL ratio dropped to 50-253 today, confirming the weakness once again. With statistics like this, it is a waste of my time to upload screens that attempt to target stocks to buy. It is important to continue to watch the stocks with the best relative strength ratings but I will focus on possible shorts once again tonight.

Sectors with the most stocks making new lows included: medicals, building related stocks and retail stocks. Computer stocks have been getting slammed as well as several of these industry groups have fallen from mid-teen ratings to the bottom of the 197 member list in IBD (in less than three months). Speaking of IBD, they finally admitted that the market was in a downtrend rather than looking for this so-called rally or follow-through. I told you last Saturday that I was extremely skeptical of the follow-through they were looking for. Long term members of MSW understand that the NH-NL ratio will confirm a new up-trend so never jump the gun and buy before the rally is confirmed or when some other publication only suggests it could happen. I love IBD and I don’t understand why they gravitate so quickly to potential ups and downs; they never did this type of stuff five years ago.

Be safe in the market!

“Good judgment is usually the result of experience and experience frequently is the result of bad judgment” – Robert Lovell (quoted by Robert Sobel, Panic on Wall Street)

Based on my experience and judgment, I will stick to cash for now and wait patiently for the next move.

“Big money is made in the stock market by being on the right side of major moves. I don’t believe in swimming against the tide” – Martin Zweig

Piranha