Sunday, July 29, 2007

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.

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