Yesterday’s market plunge is bullish

The big professionals who control the market pushed the market down early yesterday taking advantage of wide spread economic fears Once it plunged low enough they swooped in and bought causing the market to close very near the day’s open – more than wiping out the day’s losses. This is a typical bullish move. When the professionals want to sell they frequently do the opposite of what happened today: they push the markets higher and then sell.

The Nasdaq and, more specifically, technology has been under performing the market for more than a month. This is because the explosive gain (35%) from the early October 2011 lows simply ran out of steam. It reached the aggressive target derived from the August through December trading range at the highs of late March and early April. Nasdaq’s weakness is important for the overall market because the market performs much better when technology leads.

It is unlikely that we are in for a serious correction or bear market because there has been no bullish climax. Without this there is no way for the big professionals to sell their gigantic holdings. They are not going to let the market drop very far while they still hold sizable holdings. On the other hand, they are not going to let the market rise until they have completed their buying. We are probably in for continued sideways action.

Stock sector analysis shows overall weakness but with some notable bright spots (www.stock-compass.com offers a complete stock sector table and relative strength sector graphs). Both capital goods and durable goods rose almost 3% in relative strength in only the first week of May and real estate continues its powerful up move. But technology is still weak and consumer staples are now way ahead of cyclicals.

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