SelfInvestors.com

Daily Report 5.7.04

Market Forecast

    Another great jobs report and more selling in the market.  It has been said many times that this is an overreaction to the impending rising of interest rates, which I would have to agree.  However, opinions don't matter.. they never have.  The market doesn't care what you, I or the guy on CNBC thinks.  What it is telling us at this point is that you should not be heavily invested, if at all.  I've been saying this for a while, but it's important to repeat.  Today, both the Dow and the S&P experienced an ugly day of distribution  (heavy institutional selling) while the Nasdaq dropped below another major level of support.

The Nasdaq broke another level of support today when it dropped below the 200DMA (red line).  Think of support and resistance levels as "tests" of strength and weakness.  The first level of support that the Nasdaq broke was the downward trend line.  That is weakness indicator number #1.  You can see the next level of support is the 200DMA which it broke today.  That is weakness indicator #2.  The market will always reveal several clues before breaking out or breaking down completely.  The last sign of weakness, should it take place, would be a drop below the next major support level at 1900 (which it hit back in March).  A highly possible scenario would be the Nasdaq falling below this last major support level, igniting some panic selling.  Only then, can a bottom to this correction be found.  Stay tuned!

You may access the market report archive here

-19.70

1918

Last line of major support at 1900, dips below 200DMA (1935) but manages to finish at support

-

-123.92

10117.34

Headed straight for DOW 10,000

Distribution

-15.29

1098.63

Continues to struggle below major support of moving averages and long term trend line, last major support at around 1075

Distribution

The aim here is to steer you into areas showing strength.. areas where significant capital is being put to work.  Starting out with a broad look at sector strength and finishing with a look at the top ten industry groups, you'll have a good idea of where to be invested.  For a look at all the sectors go to the members home page.

Sector Strength
There is very little strength in the market, so we'll continue to look at sectors that are breaking down.  With rising interest rates on the horizon, homebuilders are getting hurt and you can see from the chart below that the housing index has busted through two levels of support (the 50DMA and the upper channel of

previous resistance).  The last major level of support for the homebuilders is right around 350 with the convergence of the 200DMA the  lower channel trend line.  Any time you have a convergence of support lines, the support area becomes much stronger, making a drop below it much more significant.  Again, the red arrows pinpoint signs of weakness.  The first sign was a drop below the 50DMA.  The second was a failure to rally back above the 50DMA (which was resistance).  The third sign was a drop below the previous resistance of the upper channel line.  The fourth and last signal to get out would occur on a break below the previous channel's support line at around 350.

 

Industry Groups Strength
Now we take a closer look at industry groups which are smaller subsets of sectors and allow us to further pinpoint where in the market the strength lies.  Don't look now, but are the semis about to turn things around?  Look at the 5 day performance.. 4 top 10 placings!  The semis are usually the first to rally in any new bull market or in this case, the next leg of the bull market.  Strength in semis could signal bottom.  I'll be keeping a watch on this group.

All of the world market funds continue to show major weakness.   There are currently no buying opportunities.  For a look at all the countries currently watched by SelfInvestors.com go to the members home page.

• Currently, there are no new featured stock selections in the SelfInvestors.com portfolio as the market continues to show weakness.  However, a watch list of potential breakouts will be released this weekend.

• The CANSLIM Investing blog continues to evolve as a place for discussion and learning.. check it out!

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