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| Stock Market Addendum to "Last Week in the Markets..." - Aug. 24, 2005 |
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Summary
"There's a hulluva correction (or worse) awaiting the US stock market..." This opinion appeared in the "Last Week in the Markets..." dated 8/8, and it went on to state, "The jury is out on whether last week saw its beginning."
It is getting to look more and more to me like the trading week ended 8/5 did see the beginning of what could become -- is likely to become -- a very ugly period.
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I suspect the stock market is now at a juncture where its short-term behavior will be quite telltale regarding the rather ugly "pullback" I believe is getting ever closer at hand. It can be exceptionally dangerous to place inordinate weight on any one day in assessing the overall process, but were I to do live dangerously, Monday (8/21) might be such a day.
Sharp gains early in Monday's session were followed by an evaporation of most of those markups by the close. Using the DJIA, S&P 500 and NASDAQ 100 as specific examples, an 82-point, 0.8% intraday gain turned into an 11-point, 0.1% result at the close. For the S&P, the respective numbers were 9 points, 0.7%, becoming 2 points and 0.2%. As for the NDX, the numbers were 15 points, 1.0%, becoming 2 points and 0.1%.
One aspect of Monday's trading worthy of note, however, is general breadth. Although NYSE volume remained on its low, summertime path, advance-decline and up-down volume results for the day did not reflect the same degree of deterioration seen in the prices of the three market proxies broken out above.
Yesterday saw a somewhat different outcome, though. Issue and volume breadth was negative virtually all day, ending the session the same way.
A quote from the most recent "Last Week in the Markets..." (dated 8/21):
"In the process of somewhat lower prices [for the week ended 8/19], the market lost more of the momentum that took the bellwether averages to their recent highs, occurring during the first week of August. Is what is beginning to evolve a portent of the serious pullback (or worse) that is very likely on the way, perhaps already in progress?"
The question posed above was a rhetorical one. The missive went on to give a pretty strong indication I thought the answer was, "yes."
I believe the following table shows an interesting phenomenon at work, one that helps illustrate the recent loss of momentum mentioned above.
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DOW JONES INDUSTRIAL AVERAGE
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DJIA Largest + Day During Week
Change -------------------------
Week for Day/
Ended Week Date Points Change
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08/19 -0.4% We 08/17 +37.26 +0.4%
08/12 +0.4% Th 08/11 +91.48 +0.9%
08/05 -0.8% Tu 08/02 +60.59 +0.6%
07/29 -0.1% Th 07/28 +68.46 +0.6%
07/22 +1.0% Tu 07/19 +71.57 +0.7%
07/15 +1.8% Mo 07/11 +70.58 +0.7%
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As the above numbers indicate, using the DJIA as the market proxy, there have been a series of one-day trading events in which that one day was inordinate in its influence on the Dow's performance for each the respective weeks ended 7/29 through 8/19, inclusive. Put another way, the strong days in each of those weeks turned out to be random in that there was no follow-through.
A word coming readily to mind given this pattern is "distribution." In fact, my overall analysis of many of the technical formations of the last several months would place very heavy emphasis on distribution patterns. If so, major distribution phases almost always segue into something rather unpleasant.
So while I again emphasize the danger of placing too much emphasis on developments of a very short-term nature, I also want to suggest that there are those instances when paying too little attention is not wise, either. In turn, I suspect the current situation is one of those instances.
I continue to believe that the stock market is heading, quite possibly on an accelerating basis, for something that will not be at all pretty.
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