Distribution hits the Market despite Banks moving higher

Void of economic data early morning futures were lower on the back of European stocks and Nikkei futures moving lower. Volume started the day mixed, but gained momentum throughout the session. Even though today’s session was a technically a distribution day we were able to close in the upper half of the trading session. The final 30 minutes of the trading session was not particularly strong as buyers were simply absent. The market is still above last week’s low and our uptrend still intact. Until evidence piles up we’ll continue to operate on the long side. An interesting development is what is going on in the Lumber futures market. Lumber continues to open limit down and is roughly 30% off its highs. Homebuilders ended the day lower, but remain near their highs. XHB has seen very little accumulation since April even though it has hit new highs. Distribution is clear in the chart and it is a prudent move to obey price signals in the homebuilders. Financials were winners on the day led by the big banks. You name them they were higher today. This is a good sign for the market when the financials are able to hold up in spite of the broader market sell-off. Even AAPL was positive on the day not contributing to the NASDAQ fall today. Keep an eye on financials as this market pushes forward. There are plenty of pundits in blogosphere as well as CNBC convinced we have seen the top in this market. Last Wednesday could have very well been the top, but how can we be so sure? We don’t have distribution piled high and our market leaders falling apart. Yes, TLT and bond yields are jumping, but this isn’t an all-out sell signal. TLT and HYG have been hit hard and something we’ll keep an eye on, but our focus is our stocks and the market. When are sell signals are given we’ll take them. At this point we haven’t been getting any and will respect our process. Remember to cut those losses.