A Blast From The Past Puts Pressure On Stocks; Normal Selling Hits The Averages

February 27, 2007

Stocks gapped open at the morning, on the back of some great buyouts (the TXU is really not good; but that is a diff. subject). STN and TXU were both buyout targets this Monday. However, that good news was quickly absorbed and just as quickly forgotten about after the former Fed chairman Alan Greenspan weighed in with comments that the US economy “could” slip into recession by the end of the year. That was enough to stop the party. The good news, when the trading day was over, was that stocks, once again, climbed off the lows of the day and finished with respectable closes. A trend that has been well established for almost two weeks now.

At the close, the worst hit index was the Nasdaq, with a .4% decline; however, prices were down around .9% during the low. The SP 600 lost .3% and the DJIA and the SP 500 both lost only .1%. It was the fourth consecutive day of losses for both the DJIA and the SP 500. Leading stocks kept pace with the Nasdaq, with the IBD 100 losing .4%. But the fact that that index did not lead to the downside is a positive. Some stocks took some hits in the index but overall it was pretty tame profit taking.

The top sectors of the day included utilities, paper, and dairy products. The best move today came from the DJUA. That index gained 2.6%, on the back of the TXU news. This move spurred me to take some profits in some long-term longs in the utility sector that I have been holding on to (NU, ETR, EOC, AEP, AYE, etc…). The worst performing group was the DJTA. That index lost 2.4%, on the back of higher oil prices. Oil rose to $61.39, putting pressure on many transportation stocks. In the Transportation sector, the Airlines lost 1.8%, the Services lost 1.5%, the Air Freight lost 1.7%, the Railroads lost 1.8%, and the Trucking group lost 2.4%. This has been a leading sector so to continue to see the transports sell off has to raise some concerns.

However caution is all that is warranted because neither index produced a distribution day today. The NYSE had higher volume, but couple that with the small price losses and you have a market that is pulling back quite normally. The Nasdaq’s volume came in lower, just what you like to see on a pullback. Breadth was even on the NYSE and was negative on the Nasdaq with losers beating winners by a 3-to-2 margin.

Stocks did not really fight back like they have the past six sessions but they still showed solid strength at support when selling did hit the market early on today, off of Greenspan’s comments. The dip buyers showed up and even if they did not raise the bids the fact that they were there just keeps showing everyone how strong this market is. Nothing that happened today has changed the situation at all in the overall stock market. The buying may be slowing but the bears keep proving that they have no current momentum or a leg to stand on.

I did have quite a few stocks give big partial profit taking signals, some recent buys are failing pretty quickly, and there are even more stocks showing up with either poor chart action or are starting climax runs. All of this signals that something is amiss. If I keep getting charts like EVOL popping up, I will throw the caution out the window. But the fact that charts like EVOL are showing up in the $2 names and not the CANSLIM names is yet another thing to start to worry about.

Take that along with everything I have posted about the market the last 5 daily market analysis post I have written and you know exactly where we stand. The fact that Helene Meisler wrote a column showing us how dangerous a high put/call ratio can be in a raging bull is even more kindling for the fire. A really high put/call at the end of a bear is very bullish. A very high put/call after a four year bull market is not bullish.

I hope everyone had a great day. I know I did even though the portfolio did not go anywhere. House cleaning is still fun to do when most of the cleaning leaves you with a profits. Aloha and I will see you in the chat room.