Stocks Stage a Big Rally, but Hit Some Resistance

The S&P 500 and Russell 2000 found very little resistance at last week’s high as the NASDAQ backed away from its high of last week. Volume was strong, but the market could not find enough buyers to clinch a true follow-through day. We continue to operate without a follow-through day, but with the NASDAQ and the rest of the indexes above their respective 50 day moving averages we are back in buy mode. The move at the end of the day does bring a bit of caution and only did a few buyers at the end of the day save the rally. Tomorrow’s reaction to the FOMC rate announcement and Bernanke’s press conference will tell us a great deal about where this market is headed. We are in buy mode despite the sluggish end of day action and will look for this trend to continue. We simply cannot ignore the move in small caps today with the index lagging only the NASDAQ today. Breaking out of a small consolidation area the group pushed higher and continues to look quite solid. It is very hard to ignore the relatively strength displayed by the group and we are going with it. Focusing in on price action IWM looks poised to continue its move higher. Of course, we have an exit plan and if this move fails we’ll simply exit and move on. There is no need to guess what may or may not happen here, but for now small caps look poised to lead this market higher. AAPL continues to be the talk of the town, but it too found resistance at its highs. GOOG did manage to get above its 50 day moving average during the trading session. However, by the close the stock was unable to close above it. Bad news for the stock as it is doing a lot of work well below the mid-point of its most recent sell-off. On the bright side of things CRM was able to punch through and breakout on very strong volume. We’ll see once again if this breakout can hold. QIHU, SSYS, DDD continue to struggle after breaking out. Tomorrow brings on the Fed and the potential for a fiscal deal. It will be fun watching the market dance to the sound of Ben Bernanke’s voice.

ISM Shows Manufacturing Contracted as Stocks Reverse and Close in the Red

In a surprise to the market data out of ISM showed the manufacturing sector contracted waking up sellers pushing the market lower. The market gapped to the upside with the hope the economy wasn’t in that bad of shape with Europe and China’s PMI data. At the open the NASDAQ hit the high of the day and was never able to recover. SPY and DIA staged an outside reversal day while IWM and QQQs were able to avoid the pattern. Volume was lower on the day compared to Friday’s massive volume surge from end of the month rebalancing. While today wasn’t an official day of distribution it was certainly a big warning sign to longs buying has been exhausted. We still have not seen a true follow-through day and it appears after today we may not see one. Tread carefully as today was not a good day for the market if it wants to push higher. The outside reversal gets negated if the market is able to retake today’s high. Volume doesn’t matter too much, but we’ll need to see the highs taken out if this market has any chance of moving higher. The other game changer was the reversals at major moving averages. For example the NASDAQ gapped above its 50 day moving average only to cut right back under it. This is not the type of price movement you want to see from the market whatsoever. To make matters worse for this rally off the November lows is market leadership. Two stocks DDD SSYS broke out last week and were looking good until the last few trading sessions. The reversals are a clear indication breakouts are failing and a big clue to the health of this uptrend. CVLT is hanging in there and with QIHU breaking out it will be important to watch how these stocks act over the next few trading sessions. Given the market conditions it is very difficult to hang onto these stocks for big wins. Remember, have an exit plan for any trades you make and do not get caught without one. Not a good start for the bulls this week. It is best to review your trading plan and execute!