Saturday, January 27, 2007

The Market's Last Week

Let's see how the markets acted last week. Just for review, I use the exchange-traded funds for the S&P 500 (SPY), Nasdaq 100 (QQQQ) and the Russell 2000 (IWN). The DJIA is at best antiquated.

Here's a chart for the S&P and QQQQs, which both say the same thing.

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We had two days of gains followed by two days of selling. However, the selling occurred on noticeably higher volume. In addition, the SPYs hit a higher level on Wednesday, then quickly retreated to lower levels -- again on higher volume. The QQQQ's looked like they were going to start moving up, but sold off the earlier in the week levels -- on higher volume. So -- short version is simple: last week there were more sellers than buyers in the market. In addition, market participants sold into the rallies. This is not a sign of confidence.

The IWNs were a little different.

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This average has been trading in a range since the beginning of December. Last week we say a similar pattern to the SPYs and QQQQs, but the IWNs sold off to about 50% of the Tuesday-Wednesday rally. In addition, it looks like the IWNs may be forming a triangle trading pattern, which usually means consolidation before a move in wither direction.

In summation, traders were concerned about the market last week, with an emphasis on selling rather than buying. Before I speculated that the decreased likelihood of an interest rate cut may be acting as a ceiling on the market. With the numbers from Friday showing strength, that may still be the case.