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Short week but no less painful for investors

Only four trading days this week and that was quite enough.

The markets sank again this week, with the S&P 500 down 1.2%, the NASDAQ down 3% and the Dow down 0.5%. The biggest loser of all was the Russell 2000, down a whopping 4.6% in just four days of trading.

The Dow, the NASDAQ, the Russell 2000 and the S&P 500 are all showing double digit losses year to date. Stocks have formally entered bear territory.

It seems like investors are grasping for anything positive. Sales at GM were terrible but not quite as horrible as expected and this instigated a rally on Tuesday. The next day Merrill Lynch downgraded the auto company and suggested that bankruptcy wasn't out of the question. The market went down again.

A bad earnings report from Nvidia caused the semiconductor sector to sag and with it, the NASDAQ. A drawdown in oil inventories caused oil prices to increase and stock prices to decrease.

The June employment report held no particularly good news but was close to expectations. ISM services came in below expectations. To my surprise, these fairly negative reports did not send the market plunging as less bad is now considered good enough

Nevertheless, with the week complete, there was plenty of damage in the broad market.

An overview of the short-term technical picture is presented in the following chart of market statistics collected by our Alert HQ process. Each weekend we scan over 7200 stocks and ETFs looking for BUY and SELL signals. We also collect various technical information that we roll up into a chart like the one below:

Stock Market Statistics, week ending 7-4-2008
We plot six different indicators. Again this week, they all reflect significant weakness in the broad stock market.

Moving average analysis --

The bad news in the moving averages gets worse every week it seems. The number of stocks trading above their 20-day moving average dipped below 1000 this week. This is the lowest since I have been gathering this data.

Likewise, the number of stocks above their 50-day moving averages fell to just 1120. That is only 16% of the total number of stocks we evaluate.

These are the worst numbers since March.

The number of stocks whose 20-day moving average is above their 50-day moving average also continues to drop at a steady rate. We are not quite at the levels we saw at the March lows but we are extremely close. Barely one quarter of all stocks can now boast that they are trading in a bullish manner based on the 20-day MA above the 50-day MA .

Looking at buying and selling pressure --

The Aroon analysis we do shows stocks in strong up-trends or down-trends. The chart shows the number of stocks found to be in strong up-trends dropped yet again last week. It is now under 8% of all stocks.

The number of stocks determined to be in a strong down-trend increased strongly this week and is closing in on 70% of all stocks we examined.

We also plot the results of Chaikin Money Flow analysis. The number of stocks undergoing strong accumulation or buying has now dropped to under 290. Not shown on the chart is the number of stocks shown to be undergoing strong distribution or selling. This indicator has now increased to over 2000.

S&P 500 Sector Analysis --

The following charts summarize how the various sectors that comprise the S&P 500 are performing technically. The first chart below is from a month ago and shows results as of the end of May.

SP500 Sector Analysis, week ending 5-30-2008
This next chart shows the results as of the end of this week which includes the June month end.

SP500 Sector Analysis, week ending 7-4-2008
It is easy to see the deterioration in all the sectors though Energy seems to be hanging in there. The sectors most vulnerable to recession and the credit crunch have naturally plunged. This includes Financials and Consumer Discretionary. Technology was a bright spot that recently dropped out of favor. The latest casualties are Industrials and Materials.

Defensive sectors have had mixed results. Utilities are showing some strength but Consumer Staples have not. Health Care has gone from mediocre to fairly weak.

In conclusion, I can only say that there seems to be few places to hide in this market downturn.


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