Tuesday, May 16, 2006

No Bounce Yet

The market finished on a somewhat weak note. Lower bond yields didn't do much to help. Volume eased on the NYSE, but rose on the Nasdaq. That makes for 4 distribution days in the last 6 sessions. Not exactly a sign of strength, but one that does set us up for a bounce.

In terms of market caps, small-caps fared the best (-0.2%) while large-cap tech led to the downside (-0.7%).

Drilling down to the sectors, consumer staples and healthcare led the way (+0.3%), while retailers (-2.2%) and biotech (-1.2%) were sold the hardest.

For the most part, the commodity stocks were weak again, and when a momentum group that has led the market gets taken to the woodshed, it tends to weigh on the market as a whole. Longer-term, lower commodity prices (and thus lower inflation) should be construed as a net positive for equities.

But as I have said over and over on this site, the market has had quite a stretch without much of a correction. Each time it looked like one might be upon us, the market saved itself. I think this time the market won't be able to save itself. I don't think it will too much of a drop, but it should be a slow enough grind to bring out the requisite levels of bearishness needed for the market to put in a tradable bottom.


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