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Market Sentiment Shifting

May 22 2008

Market Sentiment Shifting

    It seems the market sees one crisis after another. There’s a bubble in real estate and in private equity which leads to the subprime crisis. And now there’s a bubble in commodities, mostly oil, leading to recession and inflation fears. In recent days the major three indexes, the Nasdaq Composite, the Dow Jones Industrials, and the Standard & Poor’s 500 all have giving hold signals. The only remaining bullish index of the major four is the Russell 2000. But the Russell 2000 is also making a top formation and could give a signal to hold any day.

    The Dow was the first to end its bullish bias, giving a hold signal nine days ago. When the first of the major three changes sentiment, it’s time to take note and start to pair down some positions. Both the Nasdaq and the S&P 500 gave hold signals three days ago. Wait for a breakout to the upside or the downside at this point before making any new buys. There could be a few strong stocks in the commodities business that continue to rally but the safer bet at this time is to be short a weak industry like regional airlines, regional banks, or home retail.

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