Dallas, TX
July 13, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Small Stocks Still Not In Gear
What's Hot Today:

U.S. stock index futures were higher on Tuesday. Traders are getting bullish about earnings season.

Today's Economic Calendar



News For Thought

How U.S. funds the Taliban. According to The Wall Street Journal: "The U.S. has poured more than $100 million into upgrading the Kajaki hydropower plant, the biggest source of electricity in south Afghanistan. And it plans on spending much more, in an effort to woo local sympathies away from the Taliban insurgency. Yet, one of the biggest beneficiaries of this American-taxpayer-financed project are the Taliban themselves. Since U.S.-funded repairs of a turbine at the Kajaki plant doubled its capacity in October, nearly half of the total electrical output has flowed to districts in Helmand province where the Taliban administer the grid, Afghan officials say. In those districts, residents pay their monthly electricity bills directly to the insurgents, who use the proceeds to fund their war with American and British troops."

Beyond dirty needles. According to The New York Times: "Desperate heroin users in a few African cities have begun engaging in a practice that is so dangerous it is almost unthinkable: they deliberately inject themselves with another addict’s blood, researchers say, in an effort to share the high or stave off the pangs of withdrawal. The practice, called flashblood or sometimes flushblood, is not common, but has been reported in Dar es Salaam, Tanzania, on the island of Zanzibar and in Mombasa, Kenya. It puts users at the highest possible risk of contracting AIDS and hepatitis. While most AIDS transmission in Africa is by heterosexual sex, the use of heroin is growing in some cities, and experts are warning that flashblood — along with syringe-sharing and other dangerous habits — could fuel a new wave of AIDS infections."

Small Stocks Still Not In Gear
Narrow Advances Offer Low Chances Of Success For Stockpickers
The S & P 500 has shown some improvement of late, but the rest of the market continues to send mixed signals at best.



Chart Courtesy of StockCharts.com


If the S & P was the market then we would be feeling a bit better about things. But since it's not, it's important to look at the whole picture. And where we're coming from is simply the odds of finding successful trades on the long side. If the whole market is acting well then the chances of picking winners are higher.



Chart Courtesy of StockCharts.com


For some time we've been looking at the relationship between the small stocks in the Russell 2000 (RUT), the S & P 500 (SPX) and the Nasdaq advance decline line (NAAD). The rationale is that the Nasdaq a-d line is now a better picture of the stock market than the NYSE advance decline line. That's because the NYSE a-d line is distorted by ETFs, closed end funds, bond funds, and preferred stocks. The Nasdaq has fewer of these.



Chart Courtesy of StockCharts.com


The charts above are fairly clear. The S & P seems to have stabilized. But the Russell 2000 and the Nasdaq a-d line are lagging. That suggests that the average stock isn't faring as well as the stocks that big mutual funds buy and program traders swing around. That means that money is concentrated on 500 stocks leaving the rest of the market without much sponsorship. That's very negative, as it decreases the chances of picking winners outside of the S & P 500.



Chart Courtesy of StockCharts.com


Now, if you add the Nasdaq Hi-Lo (NAHL) statistics, you note that the number of stocks making new 52 week highs is starting to drop. That means that not only isn't money going into the Nasdaq, but that it's coming out of the Nasdaq.

The bottom line is that the technicals remain negative for this market.

Conclusion

Yesterday we noted that small investors were leaving the stock market. Now, we can see that their exodus may be having an effect on the small stocks and the technology laden Nasdaq, two areas which make up a major portion of the market.

When money follows this narrow a path into the stock market, there is usually little opportunity to make major gains as trading is either choppy or just to the down side.

This market still has a lot of work ahead of it.

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
Intel (Nasdaq: INTC) Is Trying To Wake Up
Shares Intel (Nasdaq: INTC) moved above their 200-day moving average on Monday.



Chart Courtesy of StockCharts.com


Once a must have stock, Intel has been a must avoid stock of late. The general perception is that PCs are like refrigerators now, a low growth appliance business. And Intel's less than stellar participation in the mobile phone market has been a problem for its image.

Yet, the company makes money, and lots of it. And there is little chance that it's going out of business any time soon. But, that hasn't been enough for those looking to buy stocks lately, and shares have mostly been avoided.

So, that's why the bounce back above the 200-day line is interesting as it suggests that somebody is interested. Still, the stock is in a down trend, making lower lows and lower highs, so jumping in with big bucks may not be the best idea.

What's our point? Intel is now on our watch list. No one seems to want it, but someone is clearly buying it. That kind of action always makes a stock interesting.

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