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June 24, 2005


After yesterday’s failed rally, watching a follow-thru decline in today’s action was quite exciting for bears. We will learn next week whether these last two days constitute a bear fake or a resumption of the grander bear market discussed in previous posts. Traders have become accustomed to month-end rallies, which we saw in all five previous months this year. Given that pattern and the fact that this month closes a calendar quarter, the dominant sentiment seemed to be that the market would rally or, at worst, stay flat. So this sell-off should delight contrarians, as well.

Despite the Nasdaq’s decline today, Google managed to rally about 2%. I would have liked to see a failure in this stock along with the Nasdaq slump, as I believe such a break would herald exhaustion on the part of bull-minded speculators. It will be something to keep an eye on next week.

The homeys also sold off again today with Toll Brothers off a little over 3% and Centex slipping about 1%. They once again fell in the face of higher long bond prices. Weakness is oozing out of these stocks. I truly believe next week will be entertaining and the action telling.

Disclosure: Short CTX; Long TOL Puts


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