(March 13, 2002)
After making a closing high yesterday at 10,632, the Dow abruptly reversed today and sank more than 130 points to close at 10,501.
Obviously, the "good" jobs number (never mind the non seasonally-adjusted unemployment rate was 6.1% on unusually warm weather) last Friday and the short-covering of IBM wasn't enough to carry the Dow today, and momentum has been virtually non-existent since Monday. More ominously, the low volume of the last three days suggests there is still a lack of interest on the buy side, and the rally of the last two weeks have just been huge short-covering.
At the time of our last commentary, we believed we were near a top as suggested by the McClellan Oscillator (it is now at +13 and any close below 0 would suggest that the majority of stocks are now declining), the huge imbalances in the COT report, the low put/call ratios, and the memo from Goldman Sachs telling its clients to go long on a short squeeze a couple of months ago. We also maintained the latest rally have mainly been short-covering. Judging from the action of the last few days, we believe that is still the case. There is a good chance the beginning of the next down leg of this bear market has already started, and all speculative longs here should be closed immediately or with a tight stop loss.
Going forward, we would not be surprised to see a rally going into expiration, but any rally here should be short-lived.
We will seek to short-sell $20,000 of HD and $20,000 of QQQ (direct short-selling, not through put options) on any strength in the markets tomorrow.