Follow-through not Likely

The market gave us 133 new lows on the NYSE and 163 on the NASDAQ, the most we have seen since last Monday, negative if you ask me. Declining issues led advancing issues by a 5-to-1 margin on the NYSE and an almost 4-to-1 ratio on the NASDAQ (two consecutive poor days after a week of positive readings).

The Dow was down 4.9% today giving us a weekly decline of 6.7% and a year-to-date drop of 34.4% (hopefully your retirement accounts are doing better, comparatively). The index did not undercut the pivot reversal low but today did mark the 8th day of a potential rally follow-through. The odds of a sustainable rally have dropped considerably since we are no longer within the 4-7 day range (a range that historically shows the greatest odds of a sustainable rally). Yes, a rally can occur within 4-10 days but the odds of it maintaining the trend lessens with each passing day. In addition, the major indexes are all trading below their 50-d and 200-d moving averages, a major red flag for any potential up-trend.

The US dollar was up slightly today and is one of the few areas of our market with a year-to-date gain, 12.2% to be exact. The dollar is actually up more than 15% since the 10/30 week moving average crossover buy signal that I highlighted in US Dollar Buy Signal on 8/24/08. I originally highlighted a possible turn of trend back in December of last year in a post titled US Dollar Snapshot.

I am not the only one that saw a bottom in the US dollar but I may be one of the few that believe this trend can last for some time. It will have many ups-and-downs but the chart of the Euro tells me that their currency is now in a confirmed long term downtrend. The 200-d moving average is now facing down, a very negative sign (the 50-d m.a. is also trending below the 200-d m.a.).

The next shorting opportunity will come when the currency challenges the 200-d m.a. and fails to break above. The Euro traded below the 200-d m.a. for a period of time in 2005 but that was short lived; prior to that, we must go back to the late 1990’s and early 2000’s to locate a point in time where the currency consistently traded below the major long term moving average.

Finally, the Value Line Arithmetic Index ($VLE) dropped more than 5% the past two days and is now down 6.89% for the week, giving us a sell signal one week after a buy signal. This adds proof that the pivot reversal attempt is suspect; something many believed anyway but we had to have confirmation before listening to our beliefs (gut feeling) rather than the tape. We can always buy the inverse ETF’s – something I wrote about on 1/25/08 in Inverse ETFs Paying Off and Inverse ETFs on 10/17/07.