Klein Market Summary-October 22nd, 2012

Klein Market Summary

October 22nd, 2012

Current Market Facts:

Technical Status                 Market in Correction Beginning Week 3
Other Observations Another wave of Distribution punished the weakened NASDAQ

GOOG, AAPL, and AMZN have led most tech stocks lower

Feel of the Market Selling continues to escalate as tech panic rises

 Important Levels on Key Indices:

Index Support Last Close Resistance
Nasdaq 300 3005 3100
Nasdaq 100 2663 2678 2744
S&P 500 1425 1433 1440
 DJIA 13296 13343 13661

Market Interpretation:

The NASDAQ Composite sold off on huge volume on Thursday and Friday to close 5% off recent highs at the important 3000 area.  While Friday’s volume surged 36% above average because of options expiration, Thursday’s was also more than 20% above average.  This was tied to weak action in AAPL, GOOG, and AMZN, which combine to equal 1/6th of the total weighting on the NASDAQ Composite.

With investing in stocks, the most dominant probability of stock success is tied to market direction.  With the weakening of the markets, and especially the NASDAQ indices, the probability of making money has plummeted.  I would also note that while we occasionally make exceptions for high volume that is options driven, we would not make an exception for the price action on Friday.  So that action should be looked at as unequivocal Distribution.

There is an important nuance in the current market.   The S&P 500 has an elevated level of Distribution, but lies only 2% below recent highs.  While the NASDAQ is dominated by large-cap tech stocks, the S&P 500 has been stabilized by large cap bio stocks, like MRK, PFE, AMGN, and BIIB.  It also has been buoyed by construction and retail groups, which are leading the market.  Whether these groups can remain resilient as tech corrects remains to be seen.

Joel’s Take:

Leading institutional investors can afford to be patient ahead of the election, as should we.  This is a market where defense must dominate.  The negative effect of earnings this season has been broad, so far.  With this week bringing many reports from leading stocks, the action should be watched closely.  Also, with the election as a major catlyst, now just 2 weeks away, this correction could be short-lived.  Without trying to predict where the market is going, it is important to anticipate how near-term events could impact the market.

The S&P 500’s resistance highs of 1440 mirrored the high of May of 2008 before the Bear Market began to take hold in earnest.  The  2007 high on the S&P 500 was 1576.  These levels should be watched closely.  If the S&P 500 breaks through 1440 and maintains that level, there could be another 10% of market upside before the next major level is reached.

  • The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis.  Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data.  The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader.  It is typically updated Monday morning, weekly.  Please e-mail info@kleinasset.com, if you are interested in receiving this free weekly update.
  • Past performance is not a guarantee of future results.  Due to market volatility, a fund’s performance may fluctuate.  Current performance may be less than previous results.  An investment a hedge fund when redeemed, may be worth more or less than the original cost.  Information above is not a replacement for the Fund’s prospectus.  This webpage does not constitute any kind of offer or solicitation.  Additional information on investment objectives and policies is in the Fund’s prospectus.  Ask your representative for a prospectus.

About kleinmarketforum

Klein Asset Management, LLC, formed in 2003, serves individual investors via a directional growth stock approach. When the market is in an uptrend, the firm seeks to exploit investment opportunities. When the trend is down or neutral, assets are protected. Klein Asset Management undertakes major market research projects. In many cases, these result in improved investment methods, which ultimately improve performance.

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