Stocks, Gold, Oil, Baltic Dry Freight lower

Stock indexes closed mostly lower today, on fairly light volume ahead of the Fed rate cut decision on Wednesday. The Nasdaq was the only strong index, with the QQQQ actually closing up a few pennies. The Qs are testing the upper end of that wedge I had on the chart yesterday. Rather than repeat that here, I thought it would be a good idea to take a longer look at the Nasdaq, this time with the broader composite rather than the 100, and under the prices show the advance-decline line. You can clearly see that as prices have advances, the breadth of the market is declining, that is, fewer stocks are accounting for the advance as time goes on. The last time I saw this degree of divergence between prices and the breadth of the market was in 1999 and leading up to the top in 2000. I was very early telling everyone I knew about the divergence. Almost nobody listened. Money kept piling into Nasdaq stocks. When the divergence could no longer be ignored by the pundits, there were all kinds of excuses offered as to why the advance decline line was no longer relevant. After all, this time is always different. It is difficult to use this kind of analysis for exact timing, as the divergence can go on for a long time. But it is worth keeping an eye on. There is also a divergence between the S&P and NYSE advance decline line, but it is not quite so glaring as it is in the Nasdaq. At the moment there is a divergence between the Nasdaq and the broader indexes. I’ve been short-term bullish on the QQQQ, but gut feel says something has to give. The small handful of Nasdaq stocks driving the QQQQ can’t sustain the entire market. Money seems to be funneling into the hot names like Apple, Google, Garmin, Rimm, etc. So there seems to be concentrated bubbles with most stocks not participating. That’s not a good sign for a long term move higher.
bdi1030.pngThe chart to the right is a close-up of the Baltic Dry Freight Index that I had on the blog yesterday. The red dots under the index is Welles Wilder’s parabolic stop indicator. Today had a down-tick in the index right to the parabolic stop for the first time in weeks, although price did not yet penetrate the stop. It was enough, along with a negative article on a web site, to knock down the premier dry shipping stock by 17.5%. I’ve been closely following this indicator to give an indication when the China bubble might be ready to pop, as much of the shipping activity seems to be due to shipments of raw goods to China.
crude1030.pngAnother bubble ready to pop is crude oil. The chart to the left shows a very nice uptrend. For the first time in a while there is a divergence between prices and the adaptive CCI indicator in the sub-graph below. These divergences in themselves can quickly turn to garbage as prices can continue higher as the indicator can keep diverging until you run out of patience. However, it is a clue that upward momentum may be waning, and if prices can work their way under the regression curve, then there could be some good trades on the short side. A similar situation is setting up in gold. Wheat is a little further along in the same set-up. Now if the dollar could just rebound. That might set all these scenarios in motion.

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