WEEKEND NOTES AND PRE MARKET

Recently, while we have watched many flail away calling the bottom on every uptick, we have let the market dictate policy with its price action. To put it mildly, price action remains about as suspect we have seen in quite a while. Remember, this recent downturn did not come out of thin air. While the DOW kept hitting new highs, many new lows were occurring, advance/decline figures had topped out, a laundry list of industry had topped badly with many at new lows, small and mid caps had broke support, the transports had broke support, the semiconductors were blasted…again, all with the DOW hitting new highs. Our studies have shown that when markets do indeed top, money will flow out of risk areas and find its way into the largest, liquid, boring mega-caps. This enables the big money (which has to be near fully invested) to avert some of the big drops. It is sell high beta, buy low beta time. Friday was another case in point as the NASDAQ was up almost 100 on the open when the DOW was up 200. Throughout the day, the gap open enabled the big money to again sell the risk. You can see all day the NASDAQ losing its bid on any pullback in the DOW. This has now been going on for quite a while.

Earnings reactions have not been thrilling. The standout is Netflix (NFLX)…gaps up $30 on perceived great numbers and drops back $45 in 3 days. That wasnt aunt Mary and uncle Bob selling. That is the institutions that have over-loved, over-owned and over-leveraged themselves in names that have worked for so long.

The “BIG 4” of the NASDAQ, NDX, DOW and S&P still trade in and around the 200 day average and a little above recent lows. If these “BIG 4” take out recent lows…well, not sure we want to go there.

Leadership is in UTILITIES and CONSUMER STAPLES. What does that tell you? Hoping for better days ahead but less than thrilled at everything we are seeing.