Markets Close in Lower half of the Day’s Range as Volume Jumps

Failure of the Bank of Japan to signal even more stimulus sent the world markets into a selling frenzy. Initially, buyers were able to push the market well off its low and at one point pushing the Dow into positive territory twice! A weak 3 year Treasury note auction sent sellers back into the market pushing the market near the lows of the session by the close. Volume rose across the board suggesting Institutions were in the market selling stocks a negative sign for the market direction in normal markets. At the very least the action we are seeing may simply be foreshadowing further volatility. This market is certainly under pressure and given the rise from November until May a little correction is certainly not a surprise to us. Obey your sell/exit signals as the stock market is certainly on shaky ground. Following up yesterday’s move lower homebuilders continue to tack onto their losses. LEN continues to be one of the weakest among the group. XHB has seen its fair share of heavy selling since February and is now just finally catching up to the ETF. An even bigger decline has come from the utilities as the 10 year yield has jumped higher. XLU topped out the first of May has slide 9% from its high and has had trouble finding buyers. Higher rates have certainly stung a few industries and it is quite obvious traders aren’t keen on higher rates. Daily volatility has certainly kicked up with the VIX nearing multi-month highs. The VIX closed at 17.07 up nearly 10% on the day. However, VIX tracking ETFs continue to lag the performance of the VIX overall. For example, the VXX was only up 6.6% today well behind the VIX performance. It certainly doesn’t appear investors are rushing towards volatility to hedge against a market decline. Or it simply could be the inability for these ETF managers to keep pace with the VIX. Something to keep an eye on as this market proceeds. The positive here is certainly the major market averages remaining above their respective 50 day moving averages. A negative here was the rejection at the 20 day moving average. While the 50 day is certainly a bit more important the rejection at the 20 day is something to take notice. Since the beginning of the year we have been able to jump back up thru the 20 day with ease. Now, we have rejection. Stick with the process and do not try to be a hero.

Small Caps lead with Gains as Industrials and S&P 500 end flat

A very uninspiring day as the market digested gains spawned from a two day rally to close out last week’s trading. Volume ended the session lower across the board. Typical for a Monday in this market as traders await Turnaround Tuesday. Homebuilders were exceptional weak today with LEN and RYL looking among the weakest in the group. AMZN followed through on Friday’s gains closing off its highs of the session. Today’s move was quite subdued given the moves from the Nikkei and DAX, but a quiet day can be good for a market. We’ll need to see follow-through from Friday’s gains here shortly. Stick to the plan by executing flawlessly. There are a few IPOs today mentioned in the Big Wave Trading chat room today. They are certainly poised for big gains and are giving us an indication we have another new high from this market. Nothing is certain, but we aren’t about to give up on potential gains because of the way we feel this market should go. Healthy action in IPOs often portrays an environment where traders are willing to take on beta risk. Thus, higher prices will be tolerated and not sold into. Stick with price and Big Wave Trading guiding you through the market waters. Lumber prices have fallen 23% off its February highs and now the homebuilders are beginning to show signs of weakness. LEN and RYL are both below their respective 50 and 200 day moving averages. Not typically a sign of strength. The homebuilder ETF XHB is struggling to hold onto its 50 day moving average. While lumber prices are months removed from its highs the homebuilders were just at highs in May. Did we just see the top in homebuilders? Time will tell, but it appears lumber prices won’t be revisiting its highs any time soon. Tomorrow we’ll get a few economic data points, but nothing of great importance. Retail sales will come Thursday and PPI will close out the week. The market will likely begin gearing up for next week’s FOMC meeting towards the end of the week. To Taper or not will be on everyone’s mind. I hardly doubt we’ll get any movement from the FOMC. In any case, stick with the plan and execute.

Small Caps Lag the General Market as Stocks Close off the Highs of the Day

Small cap stocks lagged the general market by closing in the red with the major market averages close just barely in the green. Buyers stepped up their operations just after 10:30 am EST showing this market has support. However, buyers weren’t able to keep the market at its high of day closing off the best levels of the day. Volume rose across the board, but we failed to make significant gains. At this time, it appears the market continues to move sideways digesting last week’s gains. Our uptrend remains intact and we continue to expect this to continue. Housing data hit this morning was mixed, but existing home sales saw some promise. Homebuilders continue to be stellar as they come off their beaten down levels. Regardless of your opinion of the housing market homebuilders have had a heck of a run. Stocks like PHM and LEN continue to look like they want to move higher here. Of course anything and everything can happen, just look at QCOR today. What we know now is homebuilders continue to look like they are going to continue to move higher. We are still waiting for this market to push higher. We have plenty of leading stocks on the verge of running higher and it may take this market pushing higher to kick these in high gear. This week has been a good week for the market and very tight despite options expiry on Friday. Usually the week of expiry tends to be volatile and in high volume. So far so good in terms of volume and how tight this market is trading. Of course, we need the market to move higher at some point before we get too bored with it. In any event, this uptrend remains healthy. Keep pushing forward!