Indexes Slide on Mixed Trade as The Nasdaq Marks its 5th Day of Distribution; Fueling the Decline was Treasury Spreads Widening to Historical Levels

May 27, 2009

By Market Speculator

Stocks took quite the tumble as Treasury spreads widen after fears about the credit worthiness of US Treasuries. The fear is the governments ability to feed the Treasury market with more paper once Obama’s record $1.75T deficit. Although volume was below the 50dma volume did increase on the NASDAQ giving it its 5th day of distribution. I wouldn’t call today a Major Day of Distribution, but it does throw caution to the wind regarding the health of this market. Most likely the biggest question that remains is when cash flees the bond market where will it find its place; stocks, commodities, forex? Wherever it lands, we’ll see it in our charts. On the whole, today wasn’t all that bad and highlights you must be cautious when distribution days mount.

Obviously the biggest scare of the day was US Treasuries. It should come to no surprise that TBT and TLT are foreshadowing some nasty times ahead for the Treasury market. Look for yields to take off as money bolts from treasuries. China, the biggest holder of US Treasuries has been balking at months at buying new paper. If China puts the brakes on you can bet your bottom dollar we’ll see record days in the Treasury market. We could be witness just another bubble bursting and this bubble will have far more devistating effects on the American People.

I was speaking to Author_Ego and he mentioned that Chinese ADRs have been leading the market higher. It should come to no surprise China has been leading this market. One would just have to look at the Shanghai and Shenzhen since March to realize that is where the strength is. Another market not to be overlooked is the Indian Market. This past election where they voted out more liberal leaning political power and voted in free marketers will only assist the Indian market higher. It’ll take more than ADRs to lift this market into a more powerful uptrend.

It should also be noted that we are nearing the 12th week since the follow through day back in early March. As uptrends age in weeks institutions, more specifically mutual funds like to book gains and tend to surpress the market. We are certainly seeing our fair share of selling, but let’s not forget we have seen a bit of buying as well. It would surprise me if we continued choppy action in the next few weeks. The market might just chop enough for some quality growth stocks to setup in bases. Quality growth stocks are certainly have been missing in action during this uptrend and would be a positive sign go see these setup.

Taking a look at the weekly charts of the two major IBD indexes I have noticed that we have yet to move significantly over the past few weeks. Not too worry, if this action was being done on heavy trade it would be concerning as it would be pointing to churning action. Churning action is when indexes move very little over a period of weeks on higher volume. At the moment, we are simply seeing the market stand in place on lighter trade. Not all that bad.

Cash is certainly an ideal place to be and there is no need to be a hero in this market. If we end up heading lower by getting our 6th distribution day on the NASDAQ it is best to keep the powder dry and ready if another uptrend begins with the IBD indexes leading the way.

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