Since we first commented on the “topping characteristics" being displayed by this market back on May 18th, our interpretation of the market action has only been further confirmed. With the major indices continually weakening, the individual stock leaders of the prior cycle are breaking; about one every other day. When a change in trend is occurring, watching the market leadership is important because regardless of the direction of the trend change, the leaders are undoubtedly going to lead it.


We now consider these leaders to be broken: OPEN, SOHU, FFIV, NETL, CTSH, SWKS, ARUN, VIT, CTRP, and SFSF. Looking at a daily chart, you would probably agree.


Over the next few weeks it would benefit us all to keep this thread going by adding the names of additional leaders that break through their support levels that have sustained them over the last 2+ years. This will illustrate the continued weakness in the market environment.


In the coming days I expect a short-term bounce to occur, but today’s attempt has been fairly muted. I’ll be keeping an eye on the former leaders that are “on the cusp” and in danger of breaking down like the rest. A few to keep an eye on are: BIDU, UA, PCLN, WLT, AAPL, CMI, LVS, and LULU.


The underlying problem in the market stems from the collective weight of all these domestic and international issues (as I stated in my previous post). It will take time for our political leaders to resolve unemployment and the housing glut; and, personally, I don’t believe they are making much progress. However, now is not the time to tune out or take a break from the market. Just like they do in an uptrend, leaders will dictate the market direction. Watching them closely will be the key to capital preservation and timing a re-entry into a more favorable market environment.  


Best Returns,

Scott O'Neil
MarketSmith Incorporated