Markets Sell-Off On Lower Volume, On Another Quiet Day On Wall Street.

Early morning strength was soon sold after the July report of existing home sales came in much weaker than expected. The selling lasted all day, helped along with the news that the US has rejected the proposal by Iran’s fascist leader, until the final hour when stocks were able to get a small bid.

When all was said and done, the SP 600 fell 1.4%, the Nasdaq fell .7%, the SP 500 fell .5%, and the Dow Jones Industrial Average fell .4%.

Volume was well below the 50 day volume averages on both exchanges; the Nasdaq’s volume was lower and the NYSE was basically unchanged from the day before. Since the volume was lower on the Nasdaq and barely higher on the NYSE, there was no distribution day. Decliners led advancers by a 2-to-1 margin on both the NYSE and the Nasdaq.

Today’s market wasn’t that bad and it wasn’t that good either. However, I keep seeing the same thing over and over that I just don’t like about this rally. The IBD 100 fell 1.2%, once again leading the market to the downside. This index is outperforming the markets to the downside and underperforming the indexes when they rally. In a true bull market that has lasting power leading stocks lead the indexes higher and when the markets pullback the leading stocks pullback a lot less. Until this pattern changes we have to be cautious about this rally.

Today was another one of those boring days but this one at least had an obvious trend to it. Unfortunately, for the bulls, it was to the downside. We have been getting overbought in the short term after the recent rally from the follow-through and there are a lot of stocks right at key resistance points. So this pullback had to be somewhat expected. Hence why I said to keep longs small last night on the new longs section.

Like I said in the third paragraph, I am not sure what is to be expected from here. If this short term pullback is going to turn into something bigger we will know soon enough. Those IBD 100 stocks leading to the downside suggest it might happen but until it does I wouldn’t press it on the short side. But if you do go long keep your stops tight and positions small. That way you will not have to worry too much if the pullback does turn into something more severe.

At the same time with the pullback worry comes this scenario: The longer the market flops around the better the chance that some stocks can setup some nice bases to breakout of. One more pullback also might setup the market up for a chance to put in a real bottom as players give up on the rallies working. Or the market could just start moving higher in higher volume. So far the lack of strong volume also keeps me worried about the staying power of this rally.

As long as we hold the lows of the rally attempt I am going to stay short term bullish and am not going to press it on the short side. I will continue to look for longs breaking out of strong patterns, until we have an obvious failure in the indexes.

Longs are not acting the best in this market but at the same time they are not breaking down hard either. Bottom line, this is a confused, low volume, and trendless market right now. Only two more days of this crap this week and then the wonderful weekend will be upon us. Not a moment too soon.

Stay awake in this boring market and I will see you at Investors Paradise.


New Swing Longs (keep it small): RMTI

New Swing Shorts: NONE

Longs Outperforming (low vol. non-IBD stocks excluded): VLG-51 LMT GES CTCM VTIV GPIC MO OMRI MNG FRO BTJ

Shorts Outperforming (all): USG-50 SWC-38 JOYG-32 NTE-31 ZRAN-27 GYI-25 BPFH-19 RES-16 GTRC-16 PII-15 BTH MAS POOL IYT SUPX HTLD PDCO HCBK VB WTI WERN RS DSL X STLD CPF XPRSA NCI EXBD DDE HYDL FDX USU KNOT TZIX HSY IART BEC ATPG NC GSF LAMR CCO KG KMR STNR CPE CFC CSE KMP CBD NGS

Completely Cover Shorts: CBST

Stocks On Radar Screen: IMKTA GHDX WEN FRG GEX AEZ