Dallas, TX
July 7, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Broad Market Says We're Heading Lower
What's Hot Today:

U.S. stock index were flat on Wednesday. The market's mixed performance on Tuesday was fairly suspect.

Today's Economic Calendar



News For Thought

'Til death do us apart..But get that prenup, just in case. According to The Wall Street Journal: "Baby boomers looking to protect their assets are increasingly turning to prenuptial agreements—legal contracts drawn up before a marriage that dictate what happens to assets in the event a couple should part ways, either by divorce or death." And it's not new as "Even before the financial crisis hit, prenuptial agreements were on the rise: Some 80% of matrimonial lawyers said they had seen an increase in couples signing them in recent years, according to a 2006 survey sponsored by the matrimonial lawyers group." Yup, reality sets into everything.

Allegations of widespread doping in the Tour de France and in cycling are leading to increasing scrutiny of sport. According to The Wall Street Journal: 'A U.S. investigation into doping allegations made by former cyclist Floyd Landis has become a global effort." According to the report: "David Howman, director general of the World Anti-Doping Agency, said Tuesday that his organization, together with Interpol, the international police organization, has helped connect U.S. investigators to their European counterparts. The goal, Mr. Howman said, is to make sure information is shared between agencies and that investigators have the resources they need to seek information outside their own jurisdictions. "We want to ensure the information is shared with the proper people."'

And there is more: "A person familiar with the investigation said the probe is moving more quickly than other past sports doping investigations. In the past, this person said, the lack of cooperation had prevented anti-doping officials from imposing penalties on athletes who had used performance-enhancing drugs. The U.S. investigation, which is being led by Food and Drug Administration (FDA) special agent Jeff Novitzky, began earlier this year. Mr. Novitzky previously led the investigation of The Bay Area Laboratory Cooperative case that implicated many professional athletes in steroid use. He declined to comment."

Let them sleep in. According to The L.A. Times: "According to a new study, students were far more likely to get eight hours of shut-eye at night and were less likely to report being unhappy, depressed, annoyed or irritated when they began their first class at 8:30."

 


Broad Market Says We're Heading Lower
an Obama Be Mulling An Extension Of The Bush Tax Cuts?
As the world ponders the next move for Lindsay Lohan, and where Lady Gaga will turn up next, many rejoiced at the bounce in the stock market. Yet, a look under the hood shows that Monday's bounce was not as good a situation as the casual observer may gather.



Chart Courtesy of StockCharts.com


Yes, the Dow Industrials and the S & P 500 managed to end up higher on Tuesday. But the broad market was way off. The Russell 2000 Index (RUT) of small stocks and the Nasdaq Advance decline line (NAAD) both headed to new lows for the current move. That's a negative divergence, that unless corrected, is predicting lower prices, as it's a sign of internal market weakness.



Chart Courtesy of StockCharts.com


The problem with this market is that it's a reflection of the economy, and of the behavior of consumers, businesses, and people in general. There is too much uncertainty in the world for anyone to make any long term bets at this moment. And the debate has yet to start.

Although we've brought taxes up here for some time, the cable news cycle is just starting to catch on to the topic. We've only noticed that the right wing pundits, such as CNBC's Larry Kudlow are starting to ask questions about whether keeping the Bush tax cuts is an option for Obama. In fact, on CNBC, a fairly good analyst, Greg Valliere, has actually said that the potential for some kind of extension of the Bush tax cuts is now being bandied about quietly among Washington insiders.

If that's the case, then there is the potential for this market to rally at some point. It would not surprise us if the Obama camp is waiting until the election gets closer to start the talk about extending tax cuts. The problem is that this administration would not likely keep the cuts intact. We suspect there would be tinkering around the edges, lots of loopholes laced with ideology and all kinds of built in checks and balances to any tax cut measures, which would essentially neutralize them.

In other words, the criteria for getting a tax cut would be so tight that few would actually get some benefit from it, assuming that it happens at all.

To be sure, though, the talk of depressions, and the hype about how the world as we know it is about to end is so high now, that maybe some kind of a fear driven trading bottom has either arrived or is near.

Conclusion

The summer isn't sizzling in the markets, but the Northeast U.S. is getting blistered. Yet, we expect the weather to get more headlines than the market in the short term. In other words, it would not be surprising to see a dull market for the next few days to weeks, as investors get into a stop and go pattern until something happens in Washington.

The potential for tax cuts to enter the political discussion is rising. And that could be a boost to investors, at least in the short term, unless there is some kind of give from the White House and Congress on capital gain tax cuts that are set to expire in January.

Otherwise, as the election nears, we would expect even more choppy trading to continue, unless some kind of convincing proposals that scale back the expected tax increases start to make their way into the mainstream discussion. They seem to be going on in the "inside baseball" political circles.

For now, though, it's hard to argue with the charts. The broad market's message is that there is more weakness ahead. All we can do is remain patient and watch before making any major decisions.

We'll be on Twitter some time today before the market closes with some updated comments.

Know when to sell and how to make money when the market falls. Get a detailed trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.

 

Market Moves - Stock Of The Day
Russell 2000 Trust ETF (NYSE: IWM) Makes New Low
The Russell 2000 Trust ETF (NYSE: IWM) made a new low on Tuesday, even as the S & P 500 SPDR (NYSE: SPY) and the Dow Jones Diamonds (NYSE: DIA) may have made a temporary bottom.



Chart Courtesy of StockCharts.com


Something is happening in the stock market, and it's not exactly bullish. The action on Tuesday was fairly suspect. The blue chip stocks jumped around quite a bit, finally closing with modest gains. But the small stocks, those in the Russell 2000 Index (RUT) lost ground and made new lows for the current move.

That's a negative technical divergence and suggests that the current down trend has more to go. To be sure, the whole bearish case may reverse at any moment, even if temporarily. The advent of high frequency trading, and generally thin summer conditions could make a rally happen at any moment, especially if some glimmer of good news materialized from anywhere.

But all we can do is deal with what we see. And what we see is a technical divergence of some magnitude. The Russell 2000 is well below its 200-day moving average, which means that the long term trend is down. And volume has been rising as the down trend matures. That means that more sellers are coming into the market, and that the down trend is gathering momentum.

The 20, 50, and 200-day moving averages are all trending down, which means that the short, intermediate, and long term trends are on the down side. And since small stocks are the venue of growth investors, this negative chart pattern suggests that this group of optimists sees little to be positive about out there.

In other words, we may get some bounces in this market, but unless something changes in the small stocks, the bounces are not likely to last.

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