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Stocks Are Dangerously Close to a Big Sell Signal

By Jeff Clark
Thursday, April 23, 2009

Stocks may be in more trouble than I thought.
 
As you know, I turned short-term bearish last week. The intermediate-term rally needed a break and this week seemed as good as any for the market to pull back and wean a few of the weaker bulls from the herd.
 
So far so good. Stocks are down on the week and it looks like we're in the middle of a short-term correction.
 
There's more downside to come. But my original plan was to use a move down to about 780 or so on the S&P 500 as an opportunity to load up on stocks in anticipation of another big wave higher. After all, my upside target for this intermediate-term rally is between 1,000 and 1,100 on the S&P. That may, however, be too optimistic...
 
We are dangerously close to getting an intermediate-term sell signal from one of my favorite technical indicators... the Nasdaq Summation Index (NASI).
 
A summation index is simply a long-range analysis of market breadth indicators. It's a measure of overbought and oversold indicators – which, by themselves, don't generate buy or sell signals. But when the momentum behind the index begins to slow down, and we get a "crossover" in the moving average convergence divergence (MACD), a summation index can signal an important intermediate-term change in the market.
 
Here, take a look...
 
 
The blue arrows point to the last few buy and sell signals from this indicator. NASI generated "sell" signals in early September 2008 and mid-January. It produced "buy" signals in late October 2008 and early March.
 
You can see for yourself how well those signals turned out...
 
 
The buy signal last October was a bit premature, but still profitable. The three other signals occurred just before huge moves in the market. So it pays to keep an eye on the NASI.
 
Now, here's the problem...
 
Last week, the NASI was extended but the MACD indicator was pointing straight up and there was no fear of a crossover. Today, however, after a couple days of weakness in the market, the MACD is starting to roll over. There's no crossover yet. But if the market sells off from here, we'll almost certainly get an intermediate-term sell signal from the NASI.
 
If that happens, forget about the idea of a second wave to the intermediate-term rally. The bear will be back.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Airline AirTran soars 22% to new high... announced better-than-expected first-quarter profit.
 
Restaurant stocks soar on good earnings... BJ's, Darden, California Pizza Kitchen, and P.F. Chang's hit new highs.
 
The "do-it-yourselfers" still leading the market... AutoZone and O'Reilly Automotive at 52-week highs.
 
Earnings today... Amazon, American Express, ConocoPhillips, Exelon, Microsoft, Pepsi, UPS.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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