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Beneath a façade of tedious price action, U.S. stocks appear to
be weakening by the hour. Yesterday, for instance, the Dow couldn’t
even muster a 100-point boost on news that jobless claims had fallen by
30,000 in the week ended October 6. Earlier this year, before our perennially
recovering economy encountered some stiff recessionary headwinds, that stat
would have been worth at least 150 Dow points on the opening. This time
around, though, DaBoyz could milk only a paltry
84-point gain from it. When a second-wind flurry of buying failed to drive
the blue chip average any higher, it was time to unload. We said so in the Rick’s
Picks chat room at the time, noting that the rally felt
“doomed,” as it indeed was. Have investors finally figured out
that virtually all employment-related statistics, especially so close to the
election, are economically meaningless at best and
brazen lies at worst? Even if they have, it would hardly have mattered. Since
early in 2009, and up until recently, any item from the Labor Department that
was other than catastrophic has been seized upon by institutional traders to
stampede bears into short-covering. As we’ve pointed out here many
times before, that’s the only kind of buying powerful enough to push
stocks through levels of supply or to jolt shares from doldrums. Now, this
effect appears to be dead, or at least dying.
From a technical standpoint, there are disquieting signs of
distribution as the Industrial Average and the S&P 500 Index hover within
striking distance of new all-time highs. With breadth deteriorating on
rallies and S&P insider selling at flood tide, leadership has gone
flaccid as well. Several key bellwethers that we monitor very closely and
trade, notably Apple, IBM and GE, have all turned lower without having
achieved their respective “Hidden Pivot” rally targets. We had
been looking to short GE at 23.70 by buying put options, but the stock went
no higher than 23.18 before turning south. As for IBM, although our
proprietary technical tools identified a potentially important top at exactly
215.59, our short offers were temporarily widowed when the stock took a
nearly $7 header after topping a week ago at 211.79. Apple, meanwhile, has
become a drag on the averages rather than leading them higher. Is the stock
just taking a breather? It’s possible, since the long-term charts
suggest that the stock’s 10% selloff in recent weeks might be nothing
more than a healthy correction. Even so, because bells are unlikely to ring
when the long-term bear emerges from a 43-month
hibernation, we are trading with a bearish bias and monitoring the lesser
charts closely for signs of stepped-up selling. When investors finally rush
for the exits, we expect the Dow to shed 2500 points in perhaps three months
Bulls will get what they deserve, but there’s no reason why bears who
understandably have been bored to complacency should suffer the same fate. Want to
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