Tuesday, June 16, 2009

Stocks Take Another Dose of Distribution While Leaders Continue to Send Mixed Signals

For the second straight day in a row stocks were hit again with another day of distribution. The selling wasn't as fierce as it could be as volume lagged behind Monday's level for much of the morning. When selling took over it was then volume began to pick up the pace to surpass Monday's level. Stock market leaders once again flashed mixed signals, but the more we see these leaders fall the more troublesome the market becomes. We did see two leading stocks perform well but there wasn't enough upside leading stocks to outweigh the damage being down on the flip side. Leading stocks and the price and volume action are telling us this market looks to be choppy in nature in the trading days ahead.

The sloppy price action going on in the stock market leaders is not positive. Tight price action is a signal of strength while sloppy price patterns are a signal of weakness. The past few trading sessions we have seen very sloppy price and volume action from our leading stocks. It began last Wednesday when we saw our leading stocks begin to fail key moving average areas. Now, we have yet to see support come into these stocks to make a stand and show that they have the strength to move higher. Unless support comes in soon the leaders that are standing may not be for long.

Back to back distribution days are never a health sign either. However, volume is still below the 50dma suggesting selling is tame for the moment. It starts with the price and volume action of the leaders then it moves onto the indexes. At the moment, we are seeing the actions of the leaders finally showing weakness in the indexes. Now the market is flashing large CAUTION signs at the moment. It is wise to be taking profits and cutting loose stocks that have wild price swings. As I stated above, choppy price action is a sign of weakness not strength. We have already seen with a few leaders what happens when a stock displays choppy price action.

If we do end up rolling over we'll be on top of getting into shorts. We still have some long signals but at the moment this market is mixed at best. Until we get decisive one way or another we won't be plunging to either side. Remember, continue to keep a positive attitude and make sure you keep your losses extremely small. It is also wise to reign in some of your positions to protect you from any further downside. Stay focused and nimble!

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