Don't Fight the Ugly Tape

08/24/2010 12:00 pm EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, chief market strategist of VRTrader.com, says the market’s trend is down for the immediate future, and investors and traders need to keep their powder dry.

With [last] Friday's morning decline, most of the indexes fell to their lowest levels in a month. It sure looks like the down trend has resumed, but we do have support down here at the mid-July and early July-lows (1,056.88 and 1,010.91 in the Standard &

Poor’s 500). We could get a bounce here, with end-of-month window dressing and Labor Day coming up, but you don't want to fight the general trend, which remains down.

Transports also fell Friday morning, but then rallied back, closing near the high of the day and outperforming the broader index. They are, as you know, an important indicator for the market at large and have to monitored carefully. The Dow Jones Transportation Average fell 7.54 or 0.18% to 4,209.28 and closed under both the 50- and 200-day moving averages.

[They weren’t] broad-based, but several Negative Volume Reversals (tm) materialized late last week, so the burden of proof is on the bulls here to break out above Thursday's 1,238.50 high. Potential up side is well into the 1,300s—1,320 on the low end and 1,375 on the upper if we break out above 1,267. 

Treasuries rallied to a new high Friday morning, but finished with a loss as stock recovered some of its losses. The long bond future fell 11/32 to 134 even after hitting a 19-month high of 135 7/32 Friday morning. We've experienced a near parabolic blow-off here, and even though I can still see deflation ahead and lower bond prices, I would not be interested in buying bonds here even though I could still see them go higher.

Yields on ten-year notes turned higher by four basis points to 2.61%. The benchmark security's yields earlier touched 2.53%, the lowest since March 2009. Thirty-year bond yields rose one basis point to 3.66%. They hit a 16-month low of 3.60% earlier.

Remember, all this time we have been on a Timer Digest Buy signal for bonds. We haven't been trading the iShares Barclays 20+ Year Treasury Bond ETF (NYSEArca: TLT), but hopefully you've had a "core" position of long-dated Treasuries or the TLT. With the economic weakness and sovereign debt crises, Treasuries are benefiting. There isn't much trading to be done, but holding a long position for the medium to long term has been quite profitable.

I remain on my Timer Digest Sell signal [for stocks], still expecting to ultimately see the Standard & Poor’s 500 under 1,000, possibly 950, which equates to the Dow Jones Industrial Average around 8,900.

Investors need to be in cash! Traders or those investors who wish to be aggressive should own inverse [exchange traded funds]. That's what I've been doing.

Subscribe to VRTrader.com here…

Related Articles on MARKETS