Stocks End The Week With More Losses, Capping Off Their Worst Week In Years

March 4, 2007

A falling dollar to a rising yen and euro and concerns of the subprime mortgage market helped weigh on stocks on Friday. However, after the damage Tuesday and the weak bounce on Wednesday and Thursday, further selling was to be expected. The most disturbing part of Friday’s selloff was the fact that almost all the indexes closed at their LOD.

At the close, the SP 600 led to the downside with a 1.8% loss, the Nasdaq lost 1.5%, the NYSE ended with a 1.3% loss, the SP 500 fell 1.1%, and the DJIA did the best with only a 1% loss. The clearly bad news came in leading stocks. The IBD 100 lost 2.5%, well outpacing the overall market. 36 of the 100 stocks in the current list managed a 2% or more loss. That is as clear as a signal that there is that this market is not healthy. Leading stocks simply do not fall this far, in relation to the overall market, unless there is real weakness in the market.

Volume was lower across the board, on Friday. But if you look at the final volume figures you will see they were, once again, well above the 50 day volume average. And according to my weekly chart of the Nasdaq, on TCNet, volume this week was the most ever for a weekly volume total. Considering that the largest weekly volume ever comes after four years of gains should be a HUGE RED FLAG on this market. The weekly volume on the NYSE, according to TCNet, was the third highest weekly volume total ever. Just like with the Nasdaq, the NYSE’s losses on this much volume is very bearish coming off a four-year uptrend.

Breadth was downright horrible today, on both exchanges, with decliners beating advancers by a 3-to-1 margin. Only three out of the 197 industry groups in IBD finished in the green. And new lows outpaced new highs, 136 to 103. If this was a normal pullback, breadth would not be this bad, more groups would be green, and there would still be more new highs than new lows. These are readings we have not seen, off a first week of selling after an uptrend, since the October 2002 bottom.

The worst groups of the day are the same groups that everyone was making money on the last bull cycle. Steel-Specialty Alloy fell 3.5%, Metals Ores fell 3.7%, and Metal Prod-Distributor fell 3.3%. The infomercials on the radio and TV are all over the place telling people to buy gold. Unfortunately, once again, for mom and pop retail investor these salesman are selling their three year plus gains right on top of their head. Just make note about all the gold infomercials you see and hear on the TV and radio. Just like internet stocks in 2000, the commodity bull is being talked about everywhere by everyone. That means only one thing: it is over or almost over. Heavy volume breakdowns and/or churning is all I see on all my oil and gold charts.

For the weak, it was nothing but ugliness, the Nasdaq swooned 5.9%, the SP 500 and 600 tanked 5.8%, the SP 500 fell 4.4%, and the DJIA held up a bit better with a 4.2% loss. The key test to really see how weak the market was can be seen in the IBD 100. That index lost 7.9% for the week. I hate to tell every trapped bull or perma-bull out there who refuses to change their market bias this but you need to understand this leading index leading this much to the downside is your full blown confirmation that this pullback is different this time. The IBD 100, if the market was fine, would may have seen figures like a 3% loss for the week. Instead, the IBD 100 and IBD 85-85 index took a bear bath, confirming the internal weakness of the market.

Friday’s selling ended the hopes of many that the price decline on Tuesday was just a one day affair. The weak bounce on Wednesday and Thursday with such poor breadth indicated that the selling was probably not over and that is what we got on Friday–more selling. There are a lot of charts out there in individual stocks that got rocked on Tuesday and that has caused almost all of the pretty charts out there to turn into ugly charts or just charts that I just don’t want to have any part of. It is going to take weeks to months to create strong bases that will help stocks launch big long sustained gains. Until these charts get prettier, cash is king.

I planned on penning a lot more this weekend but I am still as sick as a dog. I can barely get out of bed and that is going to cause me to keep this report short. I simply can not think right now, with a runny nose, soar throat, and nagging cough. I don’t get sick often, but I am sick as can be right now. Hopefully, this will go away by the end of the week. The one good thing I can say about being sick right now is that I am not missing out on a lot of action that will make me a ton of money. The name of the game has switched to making a living to protecting my capital so that when the market rights itself I can take all of that money and invest in top stocks breaking out of perfect bases in an uptrending market. Trading or investing here is almost for sure to lead you to losses. These choppy and changing market environments are no place to place big bets on longs or shorts. However, shorting is working out much better right now than the long side.

If you seriously do not understand where we are in the cycle, please go read all of my postings from Tuesday to today. This will go over many different items that will show you why this pullback is different from all the other pullbacks since the uptrend started in March 2003.

I apologize for being under the weather. Hopefully, I will be fully recovered by Monday morning. Aloha and I will see you in the chat room.

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Posted by Joshua Hayes | Filed Under Free Commentary

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2 Comments »

Comment by mark bradley

2007-03-05 00:46:38

Hope you feel better Maui. I just got over a nasty flu and it was nasty. Eat lots of garlic (it really does work) and start taking some cod liver oil once a day (you can get it flavoured so it doesn’t taste bad) - again, it really does work wonders.
Amazingly, during and after my sickness I’ve totally lost my desire to drink coffee !
M. Bradley

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Comment by MauiTrader

2007-03-28 21:19:19

Oh my goodness, M. Bradley.

I have no interest in coffee anymore. I have not drank coffee since February.

Thank you for the advice. I will remember to use cod liver oil.

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