The Recent Stock Market Rally is Running Out Of Steam – be CAREFUL!

Coming down from the April 26th top the market dropped from 11,205 to 9,816 in 30 trading days.  This down leg was a result of the dawn of the Greek Crisis and contained the ‘flash crash.’  The rally off the 9,816 low lasted for 10 trading days and broke the downtrend line causing a buy signal for the second half of this rally. 

The sell off from the peak of that rally (10,442) lasted for 9 trading days and bottomed at a lower low of 9,686.  The lower highs (11,205 to 10,442) and the lower lows (9,816 to 9,686) indicate the market is still in a downtrend which is not good for the long side players. 

From the 9,686 low the rally lasted 7 days and peaked at 10,367.  This high did not make a higher high (above 10,442), but it did break more downtrend lines.  The market had a 200+ point drop last Friday which took it below its 50 and 200 day exponential moving averages.

While the secondary downtrend lines from the top of the market in 2010 were broken by the recent rally, the market look weak and running out of steam.  Looking at some of the stronger stock in the market such as Cramer’s C.A.N.D.I.E.S., shows that even some of the best stock failed to make another high.  This is telling me the market looks very weak.

We are in the Q2 earnings season and a series of good earnings reports could spark the market.  The technical chart look right now is bearish but news can break charts like rock breaks scissors.  Unfortunately, according to the charts right now, the market is still weak and going lower.

No matter what stocks you own be careful as the market is getting weak. Tighten your sell stops and maybe even get short a little more.

Stock notes:

Of the C.A.N.D.I.E.S., CMG is looking very weak (weakest of the bunch) and Apple (NSDQ: AAPL) looks weak and has been getting a lot of bad press lately. 

Netflix (NSDQ: NFLX) had some positive analyst news about expanding to Canada BUT the chart still looks weak. 

Express Scripts (NSDQ: ESRX) is looking weak and did not bounce as well as some of the C.A.N.D.I.E.S. even though I said it was the best of these stocks.  Fundamentally, and as far as their business line goes, I thought it was a great buy, and long term I still do, but be careful.  If the market starts to drop you can always sell it and buy it back cheaper as when the tide goes out all ships go down.

Salesforce (NYSE: CRM) came the closest to making a new high on the last rally.  This shows relative strength in this group.  Some of the other stocks ran up but did not really approach the level of the last high.  CRM did.  This indicates a good following of those playing this stock.  Do not take this piece of news as great news – a lower high is a lower high.

If you want to know what higher highs and lower highs and the meaning of lower lows with any kind of highs, visit www.StockTradingCards.com.

Tuesday, July 20, 2010 - 2:30 a.m.