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22nd June 2008
The DJIA is only a day away from testing its March lows. The SP 500 is two or three days away. The NASDAQ, on the other hand, has held up well since March as the bulls think that Technology stocks are going to lead the way to the promised land. If the NASDAQ tests its lows in less than a week, we would have a sure sign of market capitulation. That could also be a good time to buy in anticipation of a bounce.
More likely though, it could take weeks for the NASDAQ to get that far, if it gets there at all. Its strong relative strength is a good indicator that Technology stocks will lead the way to recovery, but there is no need to hurry to get on that bandwagon. It appears that the financial stocks are not finished trying to drag the rest of the economy down with them.
As Bob has said many times stay defensive. Maybe it would be a good time to move to cash and take your kids on a summer vacation. That could be a lot less expensive that staying fully invested. If you want to be active, more bear call spreads may prove worthwhile for July, just as they did for the June expiration.
JD