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    Rev Shark:

    After Yesterday's Damage, Buyers May Start Looking
    6/24/05 8:25 AM ET

    "People who make a lot of money often make mistakes, and even have major setbacks, but they believe they will eventually prosper, and they see every setback as a lesson to be applied in their move towards success."

    -- Jerry Gillies

    The market suffered a very ugly setback yesterday. An attempted breakout was turned back when crude oil flirted with the $60 mark. Bulls who had been waiting for the breakout move suddenly found themselves trapped when the market sputtered. They all tried to squeeze through the exit at once, and that caused a very sharp drop.

    This action did some severe technical damage. Not only was it a nasty day of distribution, significant short-term uptrend lines were broken. Textbook technical analysis is to sell the indices at this time. The dive killed momentum, and even if we do see a bounce, the character of the market has changed.

    Perhaps, but I'm not convinced that the bulls are just going to give up and go away at this point. Crude oil is definitely a problem, but one positive is that in some ways high oil does the job of the FOMC and may make the Fed less aggressive on the interest rate front in the months ahead. High oil slows economic growth, and although it is inflationary in itself, it cools the economy in many ways.

    Keep in mind also that the rally off the April lows never gave much of an opportunity for some folks to enter the market. We ran fast and furious, and there were few opportunities to "buy the dip." Big funds that have had lagging performance this year are going to be looking to buy a pullback. Combine that with end-of-the-quarter window-dressing, and we have some good reasons for buyers to start fishing fairly fast.

    A day like yesterday does roil the hot-money momentum traders more so than traditional investors. The mantra of momentum and trend-following traders is "The trend is your friend," and when it is broken like it was yesterday, you sell first and ask questions later. You don't look for reasons why the market might recover. You adhere to your discipline and move to the sidelines. What that means is that some of the stocks that the momentum traders favored are going to keep falling. Value-buyers aren't going to be interested in these stocks until they fall much further.

    I'm looking for the market to find some footing fairly fast, but I'm not looking for a sharp recovery from yesterday. If we can hold steady for a day or two, I'd like for the end-of-the-quarter games to edge us up next week. After that, I'm worried it is going to be a long summer, but we'll deal with that when we get there.

    We are trading flat in the early going. Oil and gold are up again, and overseas markets were generally down in sympathy with our poor action yesterday. The news wires are quiet, and the Pistons had the game but couldn't close the deal. As they say in Chicago, "Wait till next year."

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