The Market Hits Stall Speed as the market Digests the State of the Union

Stocks enjoyed buying through the early morning session as Europe rebounded from its recent pullback. By 10:30 the market changed behavior as it simply could not maintain its high of the day. Thirty minutes prior to the European close the market took a nose dive and hit the lows of the session. Volume was running higher throughout the session and indicating the market had begun hitting stall speed. A late day push from CSCO and AAPL assisted the market lifting from the lows of the session, but the Dow Jones Industrial Average did not escape a day of distribution. Tough to call a stall day on the NASDAQ, but for back to back days the index has been unable to hold the highs of the day. The market is having a tough time with the highs up here. We remain in an uptrend and while there are subtle signs of cracks we haven’t had an all out sell signal. CSCO reported earnings after the bell and they beat their numbers. However, the initial pop the stock enjoyed was short lived with the stock pulling back. The stock has been on a heck of a run since November contributing to the success of the NASDAQ. Given the action now it appears all is well with the stock, but tomorrow is a new day and anything is possible. If you are long the stock, just know where your exit is. It appears the past few sessions earnings have not been kind to the majority of stocks. PRLB is an exception after earnings. The stock blasted higher with volume to boot. A very good sign for those who are long the stock. PCYC was another earnings winner. CMCSA started the day off right, but like the market was unable to sustain the high. The loss of the day came from a growth stock RAX. RAX clearly disappointed the street as the stock fell hard in massive trade. This is not what you want to see out of a growth name. BWLD was another loser on the day. Earnings season has created quite the volatility in stock movements. INVN and KORS continued their slumps. There are positive and negatives to the current market rally. Everyone and their mother are expecting a pullback. When and how this market correction unfolds is anyone’s guess. It is tough to really say we have hit a market top without major distribution following these stall days. Know your exits and wait for your price signals to hit.

Stocks Fall Again as Fed Hints at More Asset Purchases Next Year

Despite CSCO and ANF gapping higher the market could not overcome selling. Once again volume jumped on the day as Institutional Investors dumped stock on the market. We did see some movement from the VIX, but the fear index remains tame under 20. Selling picked up steam as Obama stepped up to the microphone after meeting with numerous CEOs. The market clearly didn’t appreciate what he had to say nor what came from the FOMC meeting minutes. More asset purchases were discussed for next year due as if the first three easing programs worked. Our sell signals remains and has kept us on the right side of the market despite the oversold conditions. There isn’t much this market hasn’t taken to the woodshed. Homebuilders and Financials were the two groups holding up and now they are under tremendous pressure. BAC had been holding up, but it too could not hold up under the tremendous selling pressure. XLF is now just above its 200 day, but all we see is heavy volume selling. It will take some time before XLF will repair itself. XHB sliced through its 50 day today and appears to be headed to its 200 day. We may be oversold, but there isn’t much signaling a short-term bottom. We could bounce into next week, but we aren’t seeing anything ready to support a significant move higher. Perhaps we get a Grand Bargain the market likes, but what we heard from Obama this is simply a pipe dream. Given the oversold nature of the market it wouldn’t surprise us to see the market try to bounce at these levels. We do not have a crystal ball, but given what we have seen from the market and with a tame VIX it is hard to believe we have found a floor. The June bottom came when the VIX nearly hit 30, but lead to a choppy bottom before we headed higher. Until we get capitulation and a VIX jumping it is very likely we’ll continue lower. Do not be a hero and try to pick a bottom. Leave that to Jim Cramer.

NASDAQ Jumps off its 200 Day Moving Average in Increased Trade

Day three of the NASDAQ’s most recent attempted rally ended on a solid note with the index gaining 1.44% on increased trade. Big Wave Trading’s model has moved into neutral territory as we did see the market make solid gains. Traders in QQQs and SPYs didn’t overwhelming support the move as the ETFs showed volume come in lower. However, volume in the ETFs hasn’t mattered in determining a new market rally and today did not diverge. Banks lead by BAC continue to act well in this market and continue to get support from the Fed. Diverging from the market rally were Gold and Silver closing the day lower. Tomorrow’s job report is the highlight of the week and surely be a big focus for market pundits. The NASDAQ put in an impressive move today. Suffering on the day was the VIX or fear index. Even during the decline fear never picked up to the point where you would say investors aren’t fearing any decline in the market. Volatility ETFs were once again slammed and continue to show themselves as a very difficult trading vehicle. But, now the market will have to deal with the jobs report tomorrow and election on Tuesday. In the after-hours session plenty of stocks are moving higher. MELI and FSLR weren’t as fortunate as PCLN, LNKD, FOSL, and SBUX. Many of these stocks have been beaten up since the summer time. LNKD continues to trade higher despite sporting a PE near 200! Remember, CSCO in the 90s had an astronomically high PE and was a huge winner. PE only matters on the way down and not when the stock is moving higher. Remember, price will dictate your actions not where the PE trades. Many growth stocks are given high PE ratios by traders. It is when supply and demand deteriorates to a point where the stocks falls hard. It is only then when the PE was too high. We’ll see what tomorrow brings for these stocks, but they are performing well in the after-hours session. We are no longer in oversold territory after today’s move. We are back to neutral in our model and will await a confirmation day. Friday represent day 4 of an attempted rally for the market. Remember, cut your losses. CORRECTION: WE REMAIN UNDER A HARD SELL SIGNAL ON THE DJIA/SP500 BUT ARE NEUTRAL ON THE NASDAQ, RUSSELL 2000, AND NYSE. OVERALL, WE ARE NEUTRAL, WITH A TINY HEDGE REMAINING IN THE SPY/DIA. WE WILL DELETE THIS SMALL REMAINING HEDGE IF WE SUBSEQUENTLY CLOSE HIGHER ON FRIDAY.

Volume Slips Despite the Market Finding Support at Session Lows; CSCO Soars in After-Hours Trade

Led by a solid rally from the Russell 2000, stocks found support more than once throughout the day. New home builder confidence was better than expected again as consumer prices were below expectations according to government figures. Unfortunately, the economic figures didn’t spark any sort of excitement among institutions. Volume was lower on the day and certainly a black mark on the day, but it was the fact the market was unable to eclipse yesterday’s high that is somewhat concerning. We’ll need to see the market build off today’s gains and have volume flood the market. Not a terrible day by any stretch, it simply just left us wanting a bit more from the market. In the after-hours session CSCO provided the market with some good news as the stock beat earnings and boosted its dividend. John Chambers is notorious for speaking what he sees (despite seeing a great economy at the end of 2007) and this time his comments weren’t as bad as they were in March. If you remember back in March CSCO’s earnings provided a downside catalyst with its negative view of the economy. This time around it doesn’t appear to be all that bad according to CSCO. The stock is trading more than 80 cents higher in after-hours session. Friday we’ll get the dreaded monthly options expiry. Volatility did pick up yesterday, but still remains relatively tame. Option expiry weeks are notorious for increasing intraday swings and volume in the market. Thus far, we have not seen either. Perhaps tomorrow will be a different day, but nothing is guaranteed. Earnings plays like KORS, FLT, and others have provided some good solid profits for those taking advantage of the morning gaps. Tomorrow we’ll get PRGO and ROST reporting earnings and tonight NTES will report. We’ll be paying close attention to these stocks as they open tomorrow and will take advantage if the opportunity presents itself. Another interesting point to continue to look at is the sell-off in bonds. TLT and TBT are two ETFs to watch but the 10 year has gone from 1.4% to 1.8% in a short time. That is one big move in bonds recently and it will be interesting to see how mutual fund flows react to rising yields. Remember, rising yields are well correlated with stock market returns. Keep an eye on yields. Now that hump day is over we’ll be looking forward to another fun summer weekend.

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.

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!!