- Stocks continue the rally but then reverse in the afternoon as tech leadership falters.
- Indices still in position to move, but some breakdowns in a broad swath of stocks are worrisome.
- Freight levels fall off after a solid start to 2011.
- Housing starts fall 5% to a 3 month low.
- French banks getting the freeze out. Same as the would be borrowers here in the US.
- Indices can still move, but if the stocks trying to set up for leadership moves falter, the indices are vulnerable.
- ORCL, ADBE try to rally the tech troops.

Monday stocks but the losses, Tuesday they cut the gains.

Stocks cut their losses nicely on Monday, leaving themselves in excellent position to continue last week’s five-day rally. On Tuesday they were ready to rally, but it was too much too fast. Futures were up. Stocks started higher and put in solid gains by mid-morning. They moved laterally during the day, but the buyers left late in the session. Stocks turned down and gave back the gains across the board, except for the Dow which managed a modest gain.

SP500, -0.2%; NASDAQ, -0.8%; Dow, +0.1%; SP600, -1.7%; SOX, -1.25%.

NASDAQ has led the move to the upside, dragging the other growth indices along with it. On Tuesday, however, it led the downside. It was up to the large cap NYSE stocks to actually put in the best moves and show relative strength. A shift in leadership? Perhaps. Some of the stocks look better. CAT reported that its global deals with up 34%. That did not help the stock on the session, but it did trigger an idea of things being better on the export side of the ledger. Money moved into that direction and away from the techs just a bit.

The move still leaves the indices in position to rally, but they are a little worrisome. We started to see breakdowns today in several areas that have been solid to this point. Indeed, we had to sell a few positions that we thought might come back to bite us. BIDU was down. It had an engulfing pattern and reversed. Other solid stocks are struggling as well. ILMN reversed sharply. FFIV had been performing well, and it moved up to resistance and flipped to the downside. Does not look that solid.

Those are indeed a bit worrisome. Even though the indices look okay with this pullback, they are forming something of a wedging pattern. They are wedging to the upside. Be concerned about that because these wedges will often break in the opposite direction that the wedge points. We will watch this. As long as the leadership that suffered some problems on Tuesday can hold the line, the indices can do the same and continue upside toward that SP500 1260 level that we are looking at as our target for this rally.

WEDNESDAY

There may be some help for the tech sector. It was a bit beleaguered on Tuesday. ADBE looks heavy. It bounced higher off of its lows, and it was selling off of on volume. That does not look good, but, then again, there is the after-hours trade. The stock was trading at 26.50 after closing at 24.60. The difference? A bit of earnings will help you. It announced a beat and increased guidance. ORCL broke higher out of that inverted head and shoulders. It was doing fine, but it had an engulfing pattern on Tuesday. It was not looking good, but after hours ORCL beat as well. It is trading higher at 29.30 after closing at 28.35. Not huge moves, but definitely giving the market what it needs at the time it needs it.

Maybe the market will engage in a little self-help and improve itself heading into Wednesday. A bit on the ropes Tuesday. The indices looked okay outside of SP600, but there were some stocks inside those indices that did not look good stocks that had set up quite nicely. Very worrisome. Maybe we were worried over nothing. Maybe the market turns right back up and continues the rally. I still think it can do that. It just needs the stocks that were setting up to take leadership to actually hold and make the move.

The breakdowns that we saw were disturbing. China falling down. Why? And consumer stocks are starting to show problems. We will watch those moving forward. We will see if ORCL and ADBE can regenerate the buyers in the tech stocks. It is the time of year for tech stocks. If the market will move, it will be led by the tech stocks. The semiconductors still look to be in good shape. There are semiconductors setting up nicely, having broken higher, and now they are pulling back to test those moves. You have to like those such as ONNN, MU, or SLAB. There are good patterns setting up despite some of the breakdowns in maybe some of the cloud computing stocks such as RVBD and FFIV.

We have some good, some not so good, and some ugly out there after Tuesday. We will see if the good prevails and the market can continue on its way to SP500 1260. After that, all bets are off. They may be off before then if these leaders cannot continue to shape up. With the semiconductors looking pretty solid, however, I think the buyers will still step in and push them higher. This is the time of year that those funds want to come in. They want to be able to buy and catch the ride higher. A lot of them are under-invested right now, and they do not want to stay that way and chance missing any run higher to end the year.