The market started out strong yesterday on both exchanges. It didn’t end that way. All the major averages opened strong, but there was a divergence from there. The New York averages held their gains and even built on them a bit during the trading session, closing at their intraday trading highs. The Nasd averages set their intraday trading highs in the first ten minutes of trading and spent the rest of the day working their way lower. They finished at their lows of the day. This continues the pattern of New York stocks leading the way and Nasd stocks, the former leaders, lagging. The COMPQ closed with a gain of .40% while the SPX was higher by .55%. The New York averages made new closing highs. Volume was slightly lower across the board, not what you want to see when prices are rallying. Leading stocks were generally weaker than the overall market with the leaders index higher by .16%. The index closed near the bottom of its trading range and below its opening price, a sign of weakness. Volume on the leaders index was a bit higher than Thursday and above average. Early in trading yesterday it looked like it would be a positive session all around. There were solid gains on both exchanges, and the New York averages closed strong. This was not the case with the Nasd averages. They again opened strong and then gave up most of those gains and closed low in their trading ranges. The most worrisome chart of all is the SOX. Semiconductor stocks are usually considered a bellwether for the market. The SOX broke below its 50dma, along with other tech related stocks. They then rallied a bit and yesterday and got back to the 50dma and turned lower. When a stock or index breaks an important moving average and can’t regain it lower prices are usually ahead. There is a real divergence in the market right now. New York averages are acting well and Nasd averages are acting poorly. Divergences like this are always resolved one way or the other. The real question now is whether Nasd averages will rally back and confirm the strength in the New York averages or will New York stocks sell off and confirm the weakness in the Nasd averages. We should see fairly soon which way it will go. Jerry
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