The media headlines try to convince us that concerns about the potential breakup of Iraq caused the sharp reversal in the stock futures and indexes yesterday. I don’t believe that, and I hope you don’t. Remember, the markets will produce the most pain on traders who are heavily opinionated about what is going to happen next in the markets. It looked like full speed ahead early in the day yesterday, but pleasure for the bulls turned into pain in a hurry.

Before yesterday’s reversal, the indexes were riding high, and the headlines shouted about the 14 year high in the NASDAQ. Everything looked rosy, so do we think that between all the optimism of the existing home sales and the Confidence Index numbers that came out in the morning a sudden concern for the situation in Iraq tanked the market? No, the market stalled as traders distributed into the euphoria, and the market rolled over. The chart below with shows the distribution, the yellow arrows show the breadth had a downward slope even as the COMP stayed near the 4400 level. When the indexes broke, the distribution intensified on heavier volume. By the way, Ian’s target for the NASDAQ was 4400, and the high yesterday was 4399.87! TradeGuider labeled yesterday as a Trap Up move. The chart is in the body of this report.

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