Dow Drops, But Small-Caps Fall Off A Cliff

I've been telling you that my sources say to concentrate on the big multinational corporations such as those in the Dow Jones Industrial Average, and high tech stocks. Well, just about everyone knows the Dow fell sharply last week (about 4.6%), but consider this: the Russell 2000 small-cap (i.e., small company) stock index fell about 8.7%. Meanwhile the Nasdaq 100 was similar to the Dow, at about 5.2%.

Looking at it another way, the Dow has now lost all it gained in the last month. But the Russell 2000 lost all it gained in over four months.

I'm not here to tell you whether to buy or sell right now, but the small-caps still look a lot worse than the big ones. One longer term indicator (the monthly MACD) has actually signaled a sell on the Russell, but is still positive on the other major indexes.

Generally after the market drops like this, it finds its footing for a bounce, and then revisists the lows. At that point if the lows hold, things will look more positive. But if they don't, then we could be in for something worse.

Also remember we're not in the most positive time of year either. Often the period from mid-July through mid-October is weak.

The Housing Bubble Helps Your Vacation

According to Money Magazine (which as you may recall is my favorite general-purpose financial publication), the bursting of the housing bubble has had at least one pleasant side effect for vacationers: There are a lot more places to rent at the beach, and prices are down.

They suggest checking VRBO.com (listings from everywhere), WeNeedAVacation.com (Cape Cod), GulfCoastRentals.com (Florida), and seeamerica.org (to find regional touist offices). Google is your friend to find other local sites.

For more information see the full article. It was published in the May 2007 print issue of Money.

The Market Fools the Bears

Yes, in early June the market was "teetering on the brink of a larger correction" as I posted then. I noted that it's been to the brink and pulled back from that brink before, and sure enough, that's just what it did. Then the last week of June it went to the brink again, only to pull away again.

When a market advance gets to the "overbought" stage (having risen relatively far and fast), generally it has to take a rest. It can do this either by declining or consolidating. In June the Dow went into a 400-pt consolidation, bouncing up and down within that range. It was unclear which way the stalemate would be resolved. In some cases, sell signals turned into buy signals and then went back to sell again.

The big 283-point advance last Thursday was certainly a positive. The Nasdaq continues to do even better than the Dow. The big multinationals, and high tech stocks, continue to lead the market as I have emphasized in the past. For example, a popular ETF for semiconductor stocks (SMH) has outperformed the S&P 500 by 2-to-1 this year.

Traders aren't quite sure what to make of this market, but most of the indicators I watch turned positive within the last 10 days or so. Longer term indicators never did say to sell.

Here is a sampling of information I'm getting right now:

• Many newsletter writers are bearish, which actually is bullish for the market. In fact, at the start of trading last Monday we were facing the heaviest S&P 500 shorting in 5 years. So of course the market fooled all those bears. It's quite good at fooling the majority.



• The breakout from the trading range could move the Dow about 1000 points in whichever direction the breakout occurs. [And it occurred to the upside.]



• Big traders and hedge funds are borrowing Yen at near-zero interest rates and buying stocks, and until the Yen starts increasing, that will continue. But when the Yen moves up substantially, watch out.



• Fewer stocks are rising. [This is typical behavior before the general market goes into a correction.] But those stocks with good earnings will attract more and more investors, pushing them up even more. Those are the stocks you want to own right now. Strong earnings can still buck the overall trend. We are entering the period of quarterly earnings reports now; expect a number of pleasant surprises in those earnings.



• Late June into the first half of July is typically a strong period for the market. But the 2nd half of July is typically weak.



• One short-term target (days to weeks) shows the Dow climbing another 250 points from here. A longer-term target (weeks to months) puts the Dow at 15,000 (up 1,100 points from here).



• The market is quite over-complacent and vulnerable for a move lower.

So it looks like it's not time to sell, but it is time to maintain some caution.

Free Meals at Burger King

I discovered that VISA and Burger King are running a promotion during June, July, and August. If you buy 10 meals at Burger King using a VISA card, the 10th one is free. You can repeat this as often as you like during the promotional period.

It can be either a credit or debit card, as long as you don't use the PIN purchase method on a debit card. There are other minor restrictions; see the web site for details.

You have to register your card at www.visa-bkdeal.com, and they automatically keep track of your purchases. You get credit for purchases made up to seven days before you register. In my case, that really helped me -- we've been busily helping a relative move, and haven't had much time to cook, so I've been going to the nearby Burger King often lately.

OK, it's not going to make you rich, but if you like to eat at Burger King, you can save a few bucks.