Market Preview 2/23

Last week the market gave us plenty of reasons to be bearish. At the same time there are breadth issues that keep me from being overly bearish. In my post a couple of days ago I noted that there are several sectors that are well off their November lows. When the market made lows in November, every sector was either at or very close to a 52 week low. This is not the case right now. Another breadth issue is with the NYSE Advance/Decline line. While the Dow is at and the S&P is close to new lows, the A/D line is holding above it's November low. Below is a chart of the S&P, with the NYSE A/D line in the lower part of the chart.

Below is a chart of the Nasdaq 100. It has been the best of the major indices over the past few months. Investors have fled to Tech recently as a safe haven, but if the QQQQ's breakdown, then I think we'll get a big move down in the broader indices.


The Dow has been leading the rest of the indices down over the past week. It seems the most vulnerable to a complete breakdown.

The Financials have and continue to drag the market down. They have been trading on news way to much lately for me to be comfortable taking a position in them. Treasury Secretary Geithner is supposed to reveal more on his housing plan early next week. Depending on what details (or lack of details) he gives could determine where the financials and the rest of the market goes from here.

Two other Industries that are concerning are the Industrials (XLI) and Consumer Staples (XLP). Both of these Industries are making new lows and are also leading the market down.

Industrials (XLI)

Consumer Staples (XLP)

The Energy (XLE), Materials (XLB), Utilities (XLU), and Consumer Discretionary (XLY) Sectors are also heading lower, but are still holding above their November lows. Watching this group could give us insight into what the broader market will do. If these names bounce off of lows, we could see a bounce in the rest of the market. If they breakdown, we will probably see another round of selling.

Energy (XLE)

Materials (XLB)

Utilities (XLU)

Consumer Discretionary (XLY)

The two sectors that continue to hold up the best are Healthcare (XLV) and Technology (XLK). If the broader market holds around it's November lows, these two sectors could try to lead the market higher.

Healthcare (XLV)

Technology (XLK)

The market seems to be split between the good sectors, the bad, and the mediocre. Tech and Healthcare are showing some good signs, but with the broader showing weakness, the bias has to be to the downside. Even though my bias is short, I wouldn't be surprised to get a small little rally back towards prior support. On the short side, I would look to the Financials, Industrials, and Staples. The key in this market is to be quick. Don't get married to one side or the other, because the market can turn on a dime.