12-9-11 Morning Comments

The battle at the 200-day moving average seems to be continuing. The NASDAQ and S&P500 have made three attempts to move above the 200-day and has so far failed. Third attempts often work if the index is going to succeed. I take the current failure as evidence of a possible failed rally attempts. I am short BIDU since its failure of the 50-day.

Yesterday's action produced two sell signals on the Market School Model. An S5 close below the 21-day and an S9 close below the 50-day. This wipes out any buy signals that we had in our pocket to be used on a future follow-through day. We also had a distribution day on the NASDAQ yesterday. Market internals were decidedly negative yesterday also. The rally count is 9 days now and we still await a follow through on one of the following indices: NASDAQ, NYSE Composite or S&P500. As I write (30-minutes into the trading day) the NYSE Composite is currently up 1.3% on a volume trajectory higher than yesterday. If this continues we could see a FTD today. Much too early to tell.

My main worry is a fake out. A FTD running up to or slightly above the 200-day sucking everyone in followed by a decicive break to the down side. I would call this the maximum pain scenario. The market seems to like to dish out this kind of pain.