Tuesday, March 06, 2012

Big Wave Trading Market Model Hits Sell with Stocks Falling in Heavy Trade

Renewed Greece fears hit the market hard today giving institutions reason to sell stock in mass quantities. For the second straight day the NASDAQ put in a big day of distribution. One positive in the day was there seemed to be buyers supporting the NASDAQ at 2900, but the negatives far outweigh the positive today. We now find ourselves with 4 days of distribution on the S&P 500 and 5 on the NYSE composite. Today’s selling did quite a bit of damage and caution is certainly warranted.

Only 23% of stocks are over their 20 day moving average, just one month ago this figure was over 80%. At the lows today the NASDAQ was only down 3.3% off its most recent high. I suspect a reaction to the recent sell off would be in-store for us. Natural reactions occur all the time to big moves and they tend to be big signals as to where the market is heading. July ’11 we saw the market trip up and fall quickly after the long run up from June ’11. The reaction to the sell-off was quite weak and on very low volume (removing options ex). This time will not be any different, the reaction to this selling is important and a big signal to the direction of this market.

Greece is at it again spreading continued (pick an adjective) worries about its debt situation. Simply using arithmetic one can deduce Greece will have to write-off/liquidate majority if not all its debt. The United States did this very thing in the 1920-1921 economic downturn and it wasn’t more than a year we were on the road to recovery. The sooner the entire global market accepts debt liquidation the faster the recovery will come. Unfortunately, the political will and fortitude simply doesn’t exist in the European Union. Let’s not forget, debt liquidation is coming to our shores too. It will only be a matter of time.

Stay disciplined and cut those losses.

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