The past two trading days were a tale of complete opposites. On Tuesday, we witnessed a sharp drop at the opening with the major indexes spending the remainder of the day clawing back to close around the unchanged line.
Yesterday, it was the exact opposite as a nice rally fell apart in the last 1-1/2 hours, and we ended up in negative territory with the Dow surrendering the 10,000 level for the first time since February.
This type of market behavior is clearly a sign that we are at a crossroads. There appears to be no clear long term trend in place, and we are aimlessly flapping back and forth based on the latest news.
These days, it’s not the domestic news menu that is disturbing but the international one. With Europe being fairly quiet for a change, encouraging reports on durable goods and new homes sales helped the bullish cause until news surfaced that China was reviewing its holdings of Euro zone debt because of potential defaults.
That’s all it took, and south we went for the remainder of the day. Despite the close in the red, our domestic Trend Tracking Index (TTI) remains above its long-term trend line but only by a meager +0.62%. I took advantage of yesterday’s early rally to liquidate 2 sector holdings, which were bouncing around their sell stop points.
As I am writing this early Thursday morning in Germany, the futures are pointing to a higher opening with the S&P; up by about 1%. As we’ve seen in the recent past, this can be meaningless as far as the outcome for the day is concerned.
We may see some type of a rebound rally, but momentum has clearly changed and a move to bear market territory, as measured by our domestic TTI, remains a distinct possibility. Right now, I’d rather be safe than sorry.