Yesterday the Nasdaq fell over 32 points as the commerce department released data showing that construction spending fell .3% in September while the Institute for Supply Management Index came in weaker than expected. At least those are the news items the press is focusing on to explain yesterday's drop in the market. They are pointing to evidence of a slowing economy and fretting over whether the Fed will act in time top stop it.

Bad news or good news the markets are due for a pullback. They've been going straight up for weeks and are now extremely overbought:

This is a weekly chart of the Nasdaq. It's weekly stochastics are overbought and starting to slope down. Once they cross below 80 they will give a long-term sell signal. The Nasdaq rallied all of the way up to its 200-day bollinger band, which has acted as resistance on it for the past several years and is typically a long-term resistance level for any market. At the very least the Nasdaq would need to consolidate and digest this recent move before breaking above this bollinger-band in any meaningful way - and that is something that would take months to happen. At the worst this has been a suckers rally and the Nasdaq will test the lower bollinger band over the next few months.

There is hope for a short-lived bounce though. The Nasdaq support trendline for the rally is sitting at 2325. Only nine points away. This point has also been support all of October. There is a good chance we'll see the Nasdaq bounce off of this level for 2-3 days and then roll over and break it to start a real correction next week. The next level of support on the Nasdaq is in the 2225-2250 area. This is the point of the Nasadaq's 150-day moving average and 1/3 retracement level of the rally that begin in July.

If we bounce into the weekend I'm likely to research for more stocks to short. Of course the trend appears to be turning negative so I wouldn't hold in hopes of a bounce. It might not come.

Gold broke out yesterday as the dollar weakened on the negative economic numbers. Gold stocks were up big initially and then gave up most of their gains going into the close. Newmont was the center of attention as it was up over 2% right on the open on earnings news. But then during the afternoon Newmont's President, Pierre Lassonde, announced that he was going to step down. The stock started to fall on that announcement and I think it likely that the other gold stocks weakened in sympathy.

Oh, we are also working on a new look for the website that will be more pleasing to the eye and easier to navigate. You should see it done by Monday as we are going to be working on it over the weekend.