The markets started off the day quite weak, after factory orders and productivity numbers came in below Economist expectations and weak October sales came in below analyst expectations. However, by the end of the day, stocks managed to fight there way back to unchanged levels and give a respectable close.
At the close, the SP 600 led to the downside falling .3%, the DJIA fell .1%, and the SP 500 and Nasdaq closed down by a fraction.
Volume came in lower on both the NYSE and the Nasdaq. This is the kind of nice calm pullback you want to see after such a clear day of distribution the day before. Breadth was negative on the NYSE by a 9-to-7 margin and negative on the Nasdaq by a 3-to-2 margin.
In my opinion, the action today was quite positive considering that we could have followed through on yesterday's selling with further losses today on higher volume. However, barely changing on lower volume has to be taken as a much better alternative to the former scenario.
Despite that the market has still seen the DJIA finish down for the fifth straight day. This is the longest streak of down closes on this index since June 2005. That isn't horrible, considering the size of the losses, but the trend on the short term is now down and the bulls have to respect that.
With the downtrend comes a lot of high quality stocks that are seeing some nasty surprises to the downside caused by poor earnings reports or earning reports that are being taken quite negatively by Wall Street. You just don't see this kind of action in a bull market.
Another thing you want to see that we are not seeing is Banks, Retail, and Semis leading. If you look at the major Philly indexes for these sectors you will see they all tried breaking out of a recent consolidation pattern the past month and they have all rolled over. You don't see this action during a strong market. You will see these indexes hold their breakouts. Now the RLX and BKX aren't in bad shape yet. So don't think I am completely bearish on these sectors. I am simply seeing warning flags in the stocks in these sectors that are causing me to open my eyes to the possibility that the market could get worse from here.
In bull markets, bad earnings releases are still treated like good earnings releases and earnings reports that beat expectations are well rewarded. Very few stocks that are blowing away analyst estimates are seeing those huge rewards hold; much less them seeing follow through gains after the report.
This market at best can be called an uptrending market with horrible action in stocks. This indicates only a select few of big caps are holding this up and even with the amount of small stocks participating it doesn't matter. Why? Because these small stocks are crap quality.
The best bet in this environment is to remain cash heavy with a long bias until further weakness shows up. Cutting your losses on stocks that do not immediately follow through is key until the market starts giving us more high quality breakouts that work for a prolonged length of time. One month of gains followed by a slow death is not how a stock should act. Stocks are showing a nasty habit of following that pattern since the May top that led to the downtrend that ended in July.
I am not sure how much downside remains or if there is even more downside to come. All I know is I am seeing signs that make me want to protect profits, cut losers, and keep my cash heavy. This rally has been flimsy and I have discussed ad naseum about all the negative things I see in my current holdings. The biggest one was not having any 100% gainers during the uptrend. I have not had that happen to me since 2000. Even in bear markets I nail some short term big winners. I couldn't even hit them in a market that was rallying. Was that my fault? Hell no! I have changed nothing. It is the market that changed. And trust me, It will change back. You don't have to worry about that. This market is designed to knock out the emotionally weak traders.
Emotionally weak traders you will be eliminated in this market. Grow some balls, take some personal responsibility, and stay positive. This will be the only way to make it out of this market environment with your sanity intact.
I will see you at Investors Paradise. Aloha!
New Swing Longs: DJO CNH OME
New Swing Shorts: NONE
Longs Up On The Day: HMSY-35 IHS-76 AKAM-192 TYL-43 CXW-34 TTEC-32 MA-75 FCSE-50 SOFO-28 BAM-41 TSRA AHS PSPT JST LWAY SVNT IGLD ACGL MSTR IAAC PCBK FFH PCCC INAP DIVX BLUD CMCSA TSTC HEI FORR BONT FSH IMKTA BEBE IMA SMSC OMTR CVLT BMA SIGM BMRN STSTI MOS REGN WSH TSYS STZ NEWP GSTL MNG HNZ CMO NU GSL MRB
Stocks On Radar Screen: NYX APKT CVLL XOMA FLML KO TESS
Take All Of Your Profits/Cut All Of Your Losses: IIVI VVI D PEI PWR SVVS VSNT TWGP MNKD
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