Dow and S&P 500 Lead Stocks Lower as NASDAQ Finds 200 Day Support

More selling hits the street despite yesterday’s end of day rally. The 200 day provided the NASDAQ with some support, but the index failed to put in a big turn around day. Earnings continue to pour in and are only helping a few stocks. FB reported after-hours and is seeing a rush of buyers into the stock, but FB is not the norm. Volatility spiked closing above its 200 day moving average for the first time since the beginning of June when our most recent rally began. Fear has once again crept back into the market, but we lack the panic we normally see in a market bottom. Price action continues to be weak with volume still big on the downside and we remain in sell mode. Earnings season has crushed many growth stocks, but they continue to pile up. BWLD is just another victim to the earnings disaster. FB and PNRA are two bright spots, but they are the exception to the rule. NFLX was hit hard again in after-hours as the company failed to reach its user target. The stock had seen some life, but for a little over a year has been taken to the woodshed. CMG is in the same camp. The ultimate growth stock AAPL reports on Thursday and after failing to rally after its announcement of the iPad mini Thursday’s report will be important to the stock. AAPL has touched its 200 day, but has yet to top out since the 2009 bottom. More than 3 years later the stock has had a tremendous run and Thursday we’ll see if the stock can find the juice to resume hitting new highs. Commodities continue to pull back as crude oil briefly hit an 85 handle on the day. Gold and silver continue to pullback after their run up from the announcement of QE 3 or what we call QE forever. The market has now pulled back roughly 6% (NASDAQ) from the QE announcement. The market dropped roughly 3.5% from its peak from the QE2 announcement. At the moment we have support at the 200 day for the NASDAQ while the S&P 500 has yet to reach its 200 day. The election is two weeks away and it is bound to have an affect on the market. The most recent pullback has not been kind to leading stocks and it appears we’ll see this continue given the reaction to earnings as of now. Have a plan and trade. Cut losses and ride your winners. Volatility is finally showing some fear in the market and will at some point signal a possible bottom. Cash is king for now.

Volume Jumps as Leading Stocks Slump

A big distribution day strikes the market, but the real story is how leading stocks fared in today’s session. While we can focus on INTC, AA, or CSCO the real story is how leading stocks acted today and what they are foreshadowing. Distribution days happen in uptrends and are quite normal. However, today’s action in leading stocks foreshadows a very bleak picture for the market ahead. While AAPL price wise held up okay volume was much higher suggesting sellers are winning the battle. Our major market averages are above their respective 50 day moving averages, but it does not appear underneath it all things are looking good. One major leading stock happens to be QCOR and today’s reversal after yesterday’s big point gain smells quite FISHY! Other leading stocks like ISRG, PCLN, FOSL, CMG, and LULU are breaking down and are not playing nice in the sandbox. This action usually spells out trouble for the market even though our distribution day count is low. It is never a good sign when your leading stocks get pounded and is often a sign for more trouble ahead. Tomorrow will be an interesting day in an option expiry week. We get the FOMC meeting minutes from the most recent Federal Reserve Open Market Committee meeting. I am sure the market will be itching to see if the Fed talked about further bond buying or what we like to call MONEY PRINTING. Quantitative easing or money printing or monetizing debt which ever you prefer is something the market has been hoping on. We’ll see if the Fed talked anything about more bond buying. At this point, what else will it do other than monetize our debt and make us become more like Japan? For now, this is all speculation and the action we are seeing is quite negative for the market. There are many headwinds facing this market and many of them are known. However, what the media calls “headline risk” is simply a non-factor for trend followers. We follow price not what Mandy says on CNBC is breaking news. Cut those losses.

Stocks End Higher For Second Straight Day as NYSE Volume Drops

Better than expected GDP and Pending home sales helped boost the stock market in the early going, but the rally appeared to stall out after lunch time. Heading into the 3 o’clock hour it appeared the market was ready to rollover into oblivion and then rumors started to fly. Obamacare would be struck down with a 6-3 vote by the Supreme Court justices. A big blow to Obama, but a positive for the stock market or so it’s perceived. Volume ended mixed once again with NASDAQ volume higher and the NYSE lower on the day. The close wasn’t stellar again for the second straight day with the market unable to hang onto the highs of the day. Some positives as we did close higher, but we remain in sell mode until the market can prove an uptrend can be sustainable. A few leading stocks sold off today, but two in particular were quite nasty. ORLY and CMG have been two stock market leaders for quite some time and their actions today are quite negative. Even MNST had a bad day, but CMG and ORLY were particularly ugly. This is not the type of moves you want to see out of your stock market leaders. AAPL has been relatively quiet over the entire month of June. AAPL was a major contributor for the early ’12 rally. Perhaps it is putting in a base, but for now the stock has yet to move. The picture of leading stocks is not as clear as we’d like and will continue to monitor. Tomorrow we’ll get a reading on GDP. The market is looking for 1.9% quarter over quarter annualized growth. Let’s be honest, we have zero clue what the number will be. However, we can use the price action to our advantage and follow it. If the number is lower than 1.9% it would certainly have the market pundits getting after the fed to print more money. How will the market react then? It is useless to guess here and to position yourself solely based upon your opinion on the number is silly. Use price as your guide and leave the guess work to CNBC. Stick to price and cut your losses.

Bernanke Fails to Mention QE3; Fitch Warns of US Downgrade Sends Stocks Lower

The NASDAQ reversed its gains in a big way after the Fed Chairman does not mention further quantitative easing. To add insult to injury Fitch warned of a possible US downgrade if a viable debt plan was not forged. Preliminary volume figures does show volume was lower on the day, but the day’s action hints at how shaky this market is at this point in the game. Economic news was a non-factor and the market action centered on the Fed and Fitch. This market remains on unstable ground and we continue to lack the necessary conviction to get any sustainable rally. Ben Bernanke’s testimony was quite clear he wanted to shift the burden away from the Federal Reserve and onto policy makers. Fiscal policy has been non-existent since the Obama administration has taken office. We had a policy from the Bush administration, but it was terrible as it simply added to our debt by running unsustainable deficits. At this point, the Federal Reserve Chairman seems to be in a holding pattern until the folks on the hill get together and form a fiscal policy. We can dream of running surpluses and lowering our national debt, but it appears this is just a pipe dream. Cash seems the place to be as the market certainly has signaled a lack of direction. Sellers have appeared to dry up here at the lows, but buyers aren’t coming out in droves to scoop up shares. LULU a former leading stock was hit hard today while CMG and AAPL appear to be on the verge of heading lower. Not the type of action you would normally see in an emerging rally. While we can still move higher from here the likely hood it is sustainable is not very high. Price will always dictate our actions and we will act accordingly. However, the the information from the market in front of us our confidence is very low this rally is going to push much higher. Remember, the last Federal Reserve Bank stress test one assumption was the S&P 500 was down 50%. To think after a small correction from March highs the Federal Reserve would step in is quite overzealous. If the market needs money printing that badly we are all in deep trouble. Cut those losses.

The Current Rally Is Coming To An End

I decided to post this as an instablog on Seeking Alpha’s site since they do not accept TA pieces without some fundamental proof. The Current Rally Is Coming To An End

Stocks Fall Hard on European Fears; AA Jumps in After-Hours

European fears helped send stocks lower as Spain and Italy fears continue to gain traction. The big deal with Spain and Italy is simply the size of their economies and it is the size striking fear in the market. Sellers dominated the entire session as volume sky rocketed in panic like fashion. VIX jumped to its highest level since early March. Not a good day for those who were long the market as there isn’t much to point to as a positive. The lone positive was in after-hours as Alcoa posts better than expected earnings and the stock jumping more than 5%. A very bearish day for the markets as the Big Wave Trading model goes into Sell Mode.

The difficulty here will be whether or not the market will continue to sell off here. If it does look out below as it could get really nasty. However, there is enough evidence we’ll see a bounce we can short into. As of today’s close the McClellan Oscillator was sitting at -377 a very extreme level. We can certainly see the market get even more oversold, but with today’s reading it is hard to believe we’ll fall much further.

Leading stocks didn’t have much support today either, but given the size of the selling no one escaped. There are many reasons for the market to sell-off, but we know it is better to act rather than trying to figure out the reasoning. Sure, Europe is a great reason for the sell-off and Spain and/or Italy’s failure would bring on some pain. But, this market has gone straight up on the back of AAPL, CMG, and PCLN. A correction here is not out of the question it is unfortunate volume kicked into hyper gear today.

Earnings season was kicked off by Alcoa during the after-hours session. The stock posted better than expected earnings and the market responded by sending the stock higher by 5%. Many will view Alcoa as the unofficial barometer for the first quarter earnings season. It will be fun to watch the entire earnings season unfold.

Cut your losses short.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading market model went through a serious of changes this week turning from a full BUY signal to a cautious BUY signal to a NEUTRAL signal by Thursday. This NEUTRAL signal means that there is no statistical edge one way or the other as measured by all of our internal indicators. While under a NEUTRAL signal, BWT will only go long the highest quality leading stocks with the strongest chart patterns, will operate from the short side on the best topping patterns, and will eliminate all losers immediately. This means that if we go long or short a stock and it does not move in our favor on day one we are out some of it to all of it. Even if that loss is only $1. No questions asked. It is still not a stock pickers market. That is, of course, you are long PCLN CMG or AAPL. If that is the case then it is a stock pickers market. If the action in these leading stocks doesn’t confirm the mantra “focus on the leaders” I do not know what does. One particularly scary aspect of this recent rally is the drawdown in the BWT accounts from mid-February to Friday. BWT was working on some solid gains when all of a sudden March hit. March has given quite a few long signals in high quality leading stocks that have led to consistently cutting losses. This isn’t happening every once in a while. It is happening on virtually every trade since mid-February. This pattern is following the same pattern of January 2011-May 2011 where the methodology we use diverged very negatively from the overall market. For the bulls sake, we can only hope this is not going to end up in a repeat of that year. The truth of the matter is that March was brutal for Big Wave Trading. In fact, it was a shocker. Watching large gains slip away (just like the gains from September 2010 to January 2011 being destroyed from Jan 11 to May 11) is always a humbling experience. Yet it is also a chance to learn and grow. And that is what we have done. It is clear the market model timing methodology is far superior to stock picking currently. Due to this, more capital will be put to work on the model signals than before. Also, playing speculative stocks with unsustainable run-ups and criminal pump-and-dumps on the short side will become a bigger player in our portfolios. Stock picking using the chart patterns that helped create vast wealth from 1996-2000, 2003-2007, somewhat in 2009, and in late-2010 for me will come back in fashion. However, right now, clearly, it is not in style. during any other rally in the past the top percent gainers below would be nearly doubled. Outside of three stocks, the returns have been paltry. As long as this methodology remains out of style, our portfolios will adjust accordingly. I hope everyone is enjoying their long weekend. Aloha.

Top Current Holdings – Percent Return (non-margin) – Date of Signal

SWHC – 84% – 1/3/12
KORS – 69% – 1/17/12
AVD – 65% – 1/10/12
RF – 42% – 1/5/12
BVSN short – 40% – 3/16/12
EPAM – 39% – 3/1/12
LQDT – 36% – 2/1/12
LNKD – 34% – 1/19/12
PRXI short – 31% – 3/30/12

NASDAQ Stalls Out with Small Caps Leading the Market Lower

Just when you think the market is about to bust higher it stalls out on us. Today’s market action while not entirely bearish certainly throws a monkey wrench into the mix. NYSE volume was lower giving the S&P 500 a nice day of consolidation. It was late day selling putting the NASDAQ into a tail spin. Once again this market finds itself in a precarious situation and for us we are looking for distribution. Not that greatest of days, but we’ll need to see this market rebound higher.

All over Big Wave Trading we have been making reference to this uptrend as going to be very difficult to manage. At many points it has flashed potential sell signals, but only to reverse higher. The best course of action is to simply not give into every little hint the market may have topped. Giving away potential big gains to pick a top is where most will end up at. We rather let winners run and run, not cut them short.

AAPL once again hits a new 52 week high, in part keeping the NASDAQ from further damage. CMG is another long term winning stock hitting a 52 week high. The stock reversed from the high, but it is hard to argue with the stock’s performance since December. CMG has been quite consistent and very unique and you can bet your bottom dollar many are trying to pick the top of CMG. They continue to be wrong. Picking tops and bottoms is a fool’s game and only leads to losses.

Have a game plan and stick to it.

A Tale of Two Tapes, NASDAQ Continues its Outperformance

The S&P 500 and other NYSE indexes were hit with a day of distribution while the NASDAQ was able to escape. Euro contagion continue with a focus on Portugal seems to be the flavor of the month. If the market hasn’t figured it out now all the Euro nations will have to face the music at some point. Fears over continued lag in the European nations weighed on investors mind. To make fears worse China’s slowdown continues to be front and center. Its PMI continues to be weak and below 50 showing a contraction. While it is too difficult to say China is either going to land or soft the fear in the market is certainly real. A late day push off the lows of the session certainly helped out the market and this uptrend. Again, today shows this uptrend is not going to be easy and will continue to frustrate investors.

Once again the McClellan oscillator has moved into extreme oversold conditions. Remember, oversold and overbought conditions can last much longer than you anticipate. At this time, being at an extreme certainly limits the very near term downside risk. That being said, we’ll still need to stay on our toes and take our signals. A one day bounce may just be a head fake for lower prices. Stick to the game plan for now and seeing where we are at I’d expect to see the market to react to the upside in the short-term.

One positive sign on the day was the relative performance of a few leading stocks. For the second straight day we did see some bright spots from leaders. Even AAPL after posting some big gains has held up relatively well the past few days. PCLN continued on its war path pushing higher once again and the same goes for CMG. CMG is just one amazing stock. The market liked what it saw out of LULU and rewarded the stock accordingly. In after-hours NKE announced a share buy-back program boosting the stock another 1%. It would be nice to see some of the newer leadership type stocks to explode higher and produce massive gains. We have yet to see massive runs during this most recent uptrend (thanks ZIRP).

Cut your laggards and always cut your losses. Have a great weekend and stay safe.

The Market Stalls as Late Day Sellers Sour the Market Mood

End of the day action was the story of the day as sellers knock down stocks. At 3:30 in the afternoon the market appeared to be heading towards a solid day. Unfortunately for those who are long the market sellers had a different idea. Negative economic news from existing home sales certainly didn’t help the market during the early part of the day, but wasn’t the primary driver for the afternoon sell-off. We can certainly blame the turnaround in bonds or slowing China growth. Very good arguments there, but the real matter at hand is the price action of the market itself. Today’s action constitutes has a stall day and we’ll need to avoid any distribution if this market has any chance of continuing its uptrend.

Some positive news on the day there were some stocks holding up. The steady Eddy of the group (Leadership) is CMG. The stock continues to march higher, forget what you have learned from any other chart pattern. CMG is in a class of its own. PCLN is another leading stock that continues to push higher, but the stock is too far extended for entry. A few other stocks held up okay, but the late day selling does cast a least, for now a cloud of doubt.

The most recent II sentiment survey shows a big bounce in bullish investment advisers. 48.4% of respondents were bullish up from last week’s, but what is striking is the number of bears dropping off. While not near March 2011 lows, we are getting real close with only 23.6% of investment advisers are bearish. Don’t get me wrong, continued fiscal policies by the US Government will at some point impact the market. However, we trend followers know price will always be our guide.

For this uptrend to continue we’ll certainly need to avoid distribution over the next few days. Any distribution would like signal further pullback. Let the market come to you, guessing we have topped here is no way to invest. Proper discipline and prudence is the best course for success.

Oversold Bounce Has No Bounce As Stocks Selloff All Day Long On Lower Volume

The stock market ended the week the exact same way it started and that is with a lot of selling. On Monday the market found support intraday to stop it but on Friday there was none of that support as the market took the bounce that started on Wednesday and slammed it to the ground.

Now, I know a lot of people that are chart watcher want to be real bearish here, especially since the retail public has been brainwashed to buy these dips, but the fact is that we are still above the Wednesday’s lows and that the market’s bounce is in fact still intact. And the other item I see is that volume was lower on today’s move lower than on the previous two days of gains.

But there is one obvious problem I already see with this bounce. There are still no fresh stocks breaking out of beautiful properly formed bases on strong volume. Therefore, there is no way that we can expect anything more than an oversold bounce right now.

I have discussed this market so much the past week here in this little blog that I am finding almost impossible to say anything new about it. But I do see something that appears to me to be very bearish. In fact the bearish indicator is an indicator I hardly use but I put it on my chart for moments like this.

The moneystream line is an indicator that I almost know nothing about. What I do know is that when it makes very bullish or negative divergences it has a high correlation of hinting at a possible big move by the security or index. Well there are two indexes that I see with some amazingly huge divergences on the daily time frames.

The SP 600 and Nasdaq are both showing severe negative divergences in moneystream to price. The worst one is the SP 600. The price has just recently eclipsed the lows of November and December but the moneystream is well below its lows at that point. But even more noticeable is the moneystream at the November and December lows compared to the August lows. The moneystream was making new lows in November way before price was and by the time price went below the previous low the moneystream was waaayyyy below the August lows. This hinted at possible more declining prices then and it was right as the November and December lows have now been taken out. And the fact the moneystream is still hitting new lows confirms that the trend should continue after this bounce is over.

Not only is the moneystream leading price to new lows, the RS line is doing the same thing. The RS line hit new 52-week lows on 11/1 which was twelve days BEFORE!! the price hit new lows. On the December bounce where price went back to touch the 50 DMA, the RS line fell almost every single day. By the time prices turned lower again, the RS line was hitting new lows. It is also hitting new lows right now well ahead of its previous lows while price is just now breaking to new lows, confirming the weakness in this index. This bounce should fail.

The Nassy just recently hit a new closing low below the November and December lows on 1/4 and with that the moneystream followed but you will notice it is hitting a new low already. That is because back in November there were four consecutive nasty down days that took the index for an 8% decline. Even though the price was well above the August lows, the moneystream was already at the lows in August. After the weak bounce that started in November that just recently ended, the Nasdaq has resumed its selloff on higher volume. The moneystream with its huge negative divergence helped traders stay out of this nasty market. The little bounce we have had the past couple of days has been pretty weak and the moneystream is confirming this with it still riding the lows.

Sticking with the themes of new lows there were still an outstanding number of stocks making new 52-week lows compared to 52-week highs. There were 63 new highs to 453 new lows showing that this market is still extremely weak as every day this week had this kind of massive weakness.

On the other hand when it comes to looking for strength we continue to only see it in the safe/defensive sectors of oil, tobacco, metal-ore, chemical, household-consumer electronics, medical, retail-wholesale, consumer products, and foreign-banks. For some of you that are not familiar with these stocks you need to know that when all of these stocks are leading the markets are not bullish. They are normally in downtrends, just like this one is, and they normally stay in them for a long time. Since this leadership has just shown up, I think it is safe to say that this downtrend could last a long time. I wouldn’t go looking for a bottom any time soon if I were you.

Another clear sign that leadership is all wrong came when I decided to look at the industry groups making new highs or at the top of the list. When I did that I was surprised to see something that my scans are confirming (my scans ONLY look for strong stocks making strong gains). Medical stocks make up four of the top 10 industry groups in the IBD 197 industry group list. This is a CLEAR sign to me that we are in a bearish market environment where experienced investors should definitely be shorting the rallies and not buying the dips. Don’t try to outsmart the market. Better traders than you have tried to do this and have failed miserably!

There is even more evidence showing up that this market is weakening. Before when we were selling off all of the indexes would pretty much sell off at the same time, with exception to the two leading small cap indexes. Why leading? Because they were the two indexes that led us higher the whole way into the 2007 top. Only near the end did the big caps start to take a lead. Just like how they do near the end of every bull market. Now a few more indexes full of leading stocks are joining the small cap stocks in leading to the downside. Now we have both leading sectors leading us down. Not good.

The IBD 100 fell 2.3% and the IBD New America index fell 2.1% with the New America index Acc/Dis rating falling to D-. That goes along with the IBD 100 and IBD 85-85 indexes D Acc/Dis ratings. Those Acc/Dis ratings along with that kind of selling on a day the Nasdaq only fell .48% should be just one more red flag that keeps you out of this market on the long side. I just pray all of my subscribers have been listening to me and heeding my advice.

By the way to show you a bigger picture of the deterioration in the leading indexes you can take a look at this week. The IBD 100 fell 4.4% compared to the Nasdaq’s 2.6% drop, the DJIA’s 1.5% drop, the NYSE’s .9% loss, and the SP 500’s .8% small fall. The IBD indexes are not as bad as the Russell 2000 or the SP 600 the past six months or so but with a little bit more aggressive selling it could get ugly for those indexes. And that could happen sooner than later with a little bit of complacency coming back into this market.

The put/call fell to .89 which is not really complacent but it definitely is not fearful right now. Combine that with the important sentiment indicator from the investors intelligence survey showing bulls still around 50% at 48.4% and bears still around 25% at 25.8%. There is still no fear there and without that fear there can be no bottom. Speaking of fear. Where is it? The VIX at one point, intraday on Friday, was down while the market was down. But by the end of the day it closed up almost 1% to 23.68. The point is is that there is absolutely no way any meaningful low can be made until this thing hits 35 (like in August that gave us a lot of nice big winners in a short time) or any real long-term low can be made until we hit 50 like we did in October of 2002. So either 35 for a short term rally and if when that happens there are no HOT charts the next real great low comes with 50 and if still no HOT charts…look out below.

And confirming my look out below comments is the fact that when we look at the leaders like JDSU, EBAY, YHOO, QCOM, MSFT, CSCO, and ORCL back in 200 and compare them to the way they looked at the top to the way SPWR DECK MA MCD FSLR CMG ISRG STP PCLN WFR GOOG RIMM GRMN BIDU look now, you can see that they all look extremely similar. This weakness is just now starting to show up in most of these leaders and you have to remember GRMN was one of the very first leaders in 2002 that continued to rally all the way into 2007. Notice it was the first one to top and how violently it has sold off. When and if the other leaders look like GRMN and how the old leaders of 2000 did, this market will probably come in much lower than we are from now. Another thing to remember is that the leaders are just now starting to break down. This comes after the subprime, brokerage, and bank stocks have already came down. Just like how the internet stocks that were built on no earnings fell before the real leaders.

Oh how wonderful it is that history repeats itself and allows those that learn from the past the chance to profit in the future. Aloha and I will see you in the chat room, after a wonderful weekend of playoff football. GO GIANTS!!!!!! Giants vs Green Bay would be great. Indianapolis or San Diego (prefer SD) vs New England would be wonderful with a GB vs NE Super Bowl. That would be great. But Seeing the NY Giants in the Super Bowl sure would be great! Aloha!! Be careful out there new investors/traders!!