Leading sectors like steel, coal, regional banks and chips lagged, while defensive sectors like pharmaceuticals were relatively perky today. This “leadership” does not give me a warm and fuzzy that we are about to resume a rip roaring uptrend.
Key tech stocks like Apple and Google have also been under pressure. Apple looks especially vulnerable to further break down. If $240 is breached, I expect that we could be looking at $220, which would not be good for the NASDAQ. Even more portentous, small-caps are one good down-day away from breaking their July lows….
Looking ahead, we have existing homes tomorrow and a GDP revision Friday, which may keep buyers at bay. I am still looking for some type of mean reversal buy mid-week as outlined here, but that rebound target will be tricky. If we crack the SPY $106ish level, I expect that we could quickly head for the $104-102 area before a bounce. And, my gut is that we crack the July lows sometime in the near future.
On another side note, I spoke with a Bank of America/Merrill Lynch financial adviser over the weekend. She has been advising her clients to add to 10yr notes since it was in the 4% range last April. Nevertheless, I tend to think we could be close to an intermediate top as there is bound to be some profit taking soon even if we see a high close before the end of the year.
This particular adviser also recently returned from a Beijing vacation, and she noted that Chinese real estate seems close to bubble levels. She also mentioned that in her Los Angeles neighborhood, houses above $1.7 million dollars are now showing bigger price declines. Homes in this range had earlier held in because of their nicer school districts and surroundings — I don’t imagine this is good for the housing numbers that will be coming up in the near future.
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