A Needed Pullback; Small Stocks Get Hit

The major stock indexes fell across the board today, with the SP500 down .4%, Nasdaq down .6%, and the SP600 down 1.1%. Volume came in higher on all indexes today, giving the indexes either their second or third distribution day since the start of the rally. The consolation prize to todays distribution days is the fact that the volume on the Nasdaq was below the 50 day volume average. However, the volume on NYSE was higher than its 50 day volume average but still below the volume it saw on the upside since the rally began. So there was some light to the day. Another positive is that all indexes still remain above their 50 day moving averages. So that level of support is still there to bounce off of.

This market needed a day to scare the bulls and embolden the bears to push the short side. That will create a healthy backdrop for further upside potential. So the down day was healthy overall and it was what I was asking for. The constant negative news helps keep a less than bullish bias out there so any drop should help the contrarian trader. Slow and steady in an uptrend is much better for long term gains than huge quick burst. Those burst usually end in a big pullback. It is the slow and steady that wins the long race.

I have to admit, though, the selling in some of my small cap stocks was stunning and my account got hit harder than what I thought it should have today. I am partial selling some of my longs with big gains and stocks that are not acting well tomorrow. However, I am not selling a lot, for most of the stocks still have very solid long-term chart patterns.

What happens now is what is important. There is always ocassional distribution days during markets in uptrend but further high volume selling would be problematic and cause a higher level of concern on my part. But if we bounce from here and base a bit I will sleep much easier knowing that the markets uptrend is safe. If we rollover, be ready. You never know what can happen. I really don't think we will, due to the constant negative headlines I see everyday. But I have been surprised by less.

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