It is all about techs

The market is at interesting crossroads. The correction in progress is leading to lot of stocks breaking down. While at the same time there is clear and visible rotation in to technology stocks and growth stocks. Good earnings are being handsomely rewarded. The question is , can a narrow focused rally continue. Yes, in the past such rallies have persisted much longer than anyone anticipated.

The shorter term picture looks risky because of daily gyrations and lot of selling in numbers of stocks with individual issues or those which had peaked in their earnings. So short term how much selling is still their is the question. Yesterday the market reversed again after a dose of morning selling. That strength has to persist in to broader reversal. Today the market has a catalyst in the form of MSFT earnings to take us higher.

The weakness of 5-6 days has set us up for a possible bounce. The FOMC meeting will be eagerly watched and market participants will try and position themselves ahead of that event. Given current conditions a rally in to that period or post that period is likely scenario.

But till the market tips its hand preserving capital is important, because any more selling at this stage sets us for accelerated selling in many names. So overall many of my short term indicators or Market Monitor are at stage where they look risky for market, but longer term indicators are still in positive territory.

I very much see the same thing as Wishing Wealth sees:

The GMI rose to 5 (of 6) and the GMI-R to 90%. There were 189 new highs and 165 new lows in my universe of 4,000 stocks. But my very short term indicators look horrendous with only 13% being positive. A close of the QQQQ below 52 would be a serious break in support. If the bounce in the QQQQ from MSFT's rise does not keep the QQQQ up on Friday, I will become very defensive. Something about this market really bothers me. Can techs continue to resist the downward momentum in the other stocks? Or will another reduction in interest rates by the Fed next week bring them all back? I still think the best place to be right now is mainly in cash.

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