ContraryInvestor - Market Observations

Unfortunately we'll be out next Tuesday the 14th, but will return Thursday the 16th with our own special brand of commentary - triple bitching.

Scattered Pictures...Of the Smiles We're Leaving Behind? Increasingly there are a few less smiles every day. Despite today's action, more and more of the troops are leaving the battlefield. A good number of generals are also being carried out. One by one. Day by day. Of course there are always a good number of fresh recruits such as JDSU, HGSI, ARBA, etc. that come charging onto the battlefield heading straight for the front lines. They fear nothing. Their youth and innocence will ultimately betray them. Somewhere there is a bullet yet to be fired with the names of each "new era" recruit etched on their casings.

Rather than rambling, we thought we'd simply let the pictures do the talking today. Our apologies in advance to those of you who experience long page loading time. We don't do this very often, as you know. Sit back and relax. Grab a cup of coffee while the page loads. As you would imagine, mini comments accompany each Rorschach sampling:

We continue to break to new lows on the NYSE A/D line as the NYSE itself is displaying all the signs of a broadening top. Plenty of NYSE sector generals such as PG, WMT, AIG, PFE, AXP, etc. have either joined the retreat or have been unfortunately shot in the back in a most untimely manner while simply trying to hide from the flying ammo.

From this chart, we better hope to God the NASDAQ is not the market of the "next century". Clearly the NASDAQ A/D line (the broad index) peaked almost six years ago and 4000 NASDAQ points ago. Since that time, the avalanche has only picked up momentum - to the downside.

Bye-Sectors...Literally. The last 52 weeks have simply been a living hell for the transports. A s-oiled group, if we've ever seen one:

In terms of the pharmaceuticals, what were once habits are now vices. Is the almost 25% one-month February down leg the grand finale of the year long decline? After all, mid teens earnings growth for many of these stalwarts is simply deemed "old economy". The traffic just isn't moving fast enough.

A bank shot in the corner pocket. Unfortunately for the bank index below, there's a huge hole in this pocket.

Although typically down at this time of year, the retailers look a tad shop worn:

Remember that Enron is a huge piece of the following Dow Utility chart. Without the "broadband" fireworks show in Enron's price recently, this chart would look a whole lot worse.

Is the fact that all of these sectors are selling at or extremely close to their 52 week lows really news to anyone? It shouldn't be. We just thought that the pictures are worth reviewing. They are graphic representation that the broad bear market is alive and well. It shows no signs of stopping. These charts show no real signs of basing. Normally, 40% declines in stocks and sectors would have us at least looking for some type of silver lining. Unfortunately, the following charts are giving us stomach pains at the current time:

As you can plainly see, the performance in the Dow over the last 12 months has been a big donut. No sugar coating. No sprinkles. The divergence between the Dow and NASDAQ performance beginning with Greenspan's lastest little money printing extravaganza last October is simply startling. The following S&P relative performance is virtually identical:

What you are seeing in all of the charts presented is extreme imbalance. You are seeing a broad tape that is really quite unhealthy. The patient appears reasonably well from the outside (the averages), but the cancer grows daily from within. It's simply hard to imagine a resolution other than a catch-up by the NASDAQ to the downside. A catch-up colored bright red. Nonetheless, we remain open to all possibilities, but will admit we can't keep ourselves from a wee wager on a NASDAQ thunderstorm we believe lies ahead. By the way, it is fascinating to note that February's reported NASDAQ short interest ratio rests at its lowest level in eight years! (Clearly, we must be the only ones contemplating a NASDAQ reconciliation.)

The Mile High Club...Submitted for your approval - the trajectory of a blow off. Any further acceleration in the rate of change of the NASDAQ and we'll break the sound barrier. Either way, keep your ears tuned in for the approaching pop. Behold history in the making:

NASDAQ	MILESTONES

First	1000 points	24 Years
Crossing	2000	3 Years
Crossing	3000	15 Months
Crossing	4000	17 Months
Crossing	5000	10 Weeks
Crossing	6000	(3 seconds?)

Chartist Extraordinaire...Of course we've saved the best charts for last. Tim's charts. Here's the latest for the SPX and the DOW:

We've moved right to the top of the channel on the S&P. Expect some fireworks if we break through convincingly. The fact that triple witch lies dead ahead means anything goes.

Have a look at the "old economy" (as described by the currently sage wisdom of the moment). It's just a shame that the old fogies controlling DJIA membership missed their chance to substitute NSOL for PG. Oh well, maybe next time.