Big Money Seeks Safe Haven

It's not a good sign for the market when the blue chips outpace the Russell and Nasdaq.
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Wednesday was an important day -- a very important day. And I suspect the action on Thursday and Friday will make this a very important week.

Although on the surface the media will point to a

Dow

up over 70 points and the

S&P 500

up nearly 4 points on Wednesday, under the surface there were plenty of cracks in leading names.

I remember how in 1987, a month or two prior to the crash, that even though the indices remained buoyant, some of the leadership names began to hit air pockets and the parabolic arcs in some names began to collapse.

I am not necessarily drawing comparisons to that type of scenario, but I mention it because I was quite complacent about what was going on at that time and recall thinking that the declines in these leading names were stock-specific and not a reason for concern, because the overall market appeared to be holding up just fine.

The point is that institutional liquidation can beget more selling. Many times the behavior of the leadership is revealing: When the generals retreat, the troops usually hightail it sooner rather than later.

As mentioned in recent commentaries, I believe there was a possibility that energy stocks were making at least an interim high, and an emotional peak was seen on the latest run into options expiration last Friday, seven months from the prior high at $71. Ditto gold.

I went on to suggest that profit-taking in the energies and basic materials, if deep enough, could spread across the board.

So Wednesday was an important day, as the charts of some of the leadership names below show.

Despite the litany of calls about how impressive the market has been because it has every excuse to go down but does not, these charts show just how fast reality can catch up to perception, or perhaps vice versa.

The indices may not be going down, but they certainly have not been going up since the sharp rally of a week ago Tuesday. Since that rally -- presumably off the

Fed

minutes that day -- we have not seen the kind of impulsive follow-through price action that I had been thinking was required to signal another leg up.

Interestingly, despite a blowout in durable goods and new-home sales numbers on Wednesday, the market was able to rally, whereas in the recent past it has been selling off on the idea that strong economic numbers would keep a data-dependent Fed to keep on keeping on.

But it was not much of a rally as the S&P once again backed off convincingly from our 1309/1310 pivot. Moreover, although the headline Dow index was up 71 points, I do not take much comfort when the big-cap blue chips are leading the more speculative Russell 2000 and

Nasdaq

. It suggests that some big money may be rotating into more liquidity and safety.

Conclusion

: Bull market or bull trap? The Dow may yet set a new headline high to keep the ducks on the pond. The S&P did what it had to do on Wednesday and rallied off its 20-day moving average. Fed Chief Bernanke speaks on Thursday, and with inflation fears and continued notable strength in the economy fanning these fears even more, his remarks will be closely followed.

Heads up for a buy program after Bernanke finishes speaking, to goose the market up for the strong weekly close that some would like. If the S&P falls back below the level where such a program may be triggered, get cautious as the next break of 1300 S&P and its 20-day moving average should put things on a slippery slope.

Russell 2000 Daily

Energy Select SPDR (XLE:Amex) Daily

Oil Index Daily

Occidental Petroleum (OXY:NYSE) Daily

Valero Energy (VLO:NYSE) Daily

Gilead Sciences (GILD:Nasdaq) Daily

Jeff Cooper is the creator of the Hit and Run Methodology and the author of the best-selling books

Hit and Run Trading (The Short-Term Stock Traders' Bible)

,

Hit and Run II (Capturing Explosive Short-Term Moves in Stocks)

, as well as a video course, Jeff Cooper on Dominating the Day Trading Market. He also created the Hit and Run Nightly Reports and co-founded a trading markets Internet site.

None of the information contained in Mr. Cooper's columns constitutes a recommendation by Mr. Cooper that any particular security, portfolio of securities, transaction or investment or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. While Mr. Cooper cannot provide investment advice or recommendations, he appreciates your feedback;

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