Shanghai Drops more than 5% sending World Markets Lower

Despite an impressive move off the lows just after the lunch hour the final hour of trading was won by sellers. Closing off the highs of the session major markets with the exception of the Dow were down more than one percent on the day. Volume simply could not compete with Friday’s level due to quadruple witching. VIX enjoyed a volatility day closing up 6.5% to 20.12. Summer time trading has arrived and we expect the volatility to continue and given the increase in volatility we will adjust. Shanghai dove more than 5% as the liquidity issues continue to evolve in China. One thing is for certain the Shanghai Composite is in a severe downtrend and trying to catch a falling knife is not something one should attempt. Perhaps the index will get a bounce this evening, but it will likely continue to the downside over the longer-term. 2013-06-24_SHANGHAI_COMP_daily The one saving grace perhaps for our markets will be the 200 day moving average will likely serve as a reasonable spot for the markets to bounce. It is anyone’s guess whether or not it will lead to new market highs, but a logical spot for the market to bounce nonetheless. Volume will be an important key in determining whether or not institutions will come out and support stocks. Today, it was a mix bag with the final hour selling really putting the damper on a sustainable bounce. A few other items will certainly help give a lift to the markets. Both the RSI and McClellan indicators are near areas where the market has bounced historically. It isn’t a given a market bounce will occur, but if one were to occur it would not come as a surprise to us. We’ll be paying attention to our stocks and will act accordingly if and when signals come our way. Everything else is just noise. Economic data today was light, but an uptick in the Dallas Manufacturing Survey was better than expected. Tomorrow we’ll get a read on Durable Goods and Wednesday we’ll get a read on GDP. Not the start to the week bulls wanted even with the intraday rally. Make it a great week. Join the Big Wave Trading team.

Stocks Drop as Volume Soars

The Federal Reserve remained the focus of many traders and pundits arguing over whether or not the Federal Reserve should taper or not. Meanwhile, sellers got to work and pushed the market lower for majority of the session. Even a last second effort by buyers was knocked down at the close. Volume soared across the board as institutions rushed into the market. Homebuilders were hit hard despite the existing home sales came in higher than expected. Gold and Silver went back to September 2010 levels as both precious metals were crushed (despite physical demand for gold continues to move higher). With the major markets having put in a lower high and a lower low a downtrend is certainly here. There wasn’t much that was spared from the onslaught of selling. The 10 year Treasury note is yielding above 2.4% and the 30 year at 3.51%. Big moves in just over a month for yields, but are they spiking because the economy is getting better? Or is it simply Ben Bernanke will no longer be buying as many bonds? Headlines came out the fed was going to taper to $65 billion a month at the September meeting and end the bond buying program next June. This announcement only threw fuel onto the fire and accelerated the decline further. It is best to step aside when a freight train is headed your way. Having a sound strategy in times like this will certainly keep you calm. Many will be driven by emotion and make costly errors while we will take advantage. Here is a screen shot of the Hindenburg Omen. You’ll notice we have gotten 6 signals since the end of May. It almost appears certain we’ll get a correction with this many signals showing up. Cut your losses and ride your winners. Have a great weekend.

Stocks Close the Quarter Higher Despite Disappointing Economic Data

The market was hit with disappointing GDP and Jobless claims figures prior to the market open. Then again just after the open with a very disappointing reading from the Chicago PMI. Despite the disappointing economic reports the market as able to find enough buyers to keep stocks in green territory. Small caps lagged the broader market as the S&P 500 led the way. VIX slipped again as buyers continue to remain complacent as fears over a correction are simply non-existent. Our current uptrend remains intact and although we do have a bit of distribution we aren’t going to throw in the towel on this rally just yet. GDP growth was revised up from .1% to .4%, but still below the expectations of .5%. At this rate, .5% is not going to cut it for the US. Even 2% GDP growth will not improve our situation greatly. Perhaps the size of the US economy is a hindrance, but we need growth in order to pay for all the services we want the government to provide us. It is anyone’s best guess if this translates to higher or lower stock prices. If we were growing like Chile with 5% GDP growth we’d be creating jobs like gangbusters! The economic pie needs to grow and we need policies that aid the growth. Enough of the economic talk and get back to price action. Gold and silver continue to trade in downtrends while Oil has resumed an uptrend. One commodity in particular, Copper continues to trade in a downtrend. Copper is a decent indicator of economic growth and right now it is not singing the praises of the economy. JJC is an ETF to track Copper and it shows quite clear the commodity is in a downtrend. Natural gas continues to remain in an uptrend even with some high volume down days. It wouldn’t surprise us if the October high is breached. Outside of Crude Oil it doesn’t appear the freshly minted cash from the Federal Reserve is finding its way into commodities. Enjoy the long weekend. Next week we’ll get a bombardment of Economic data from across the world. It should be a fun time. Cut those losses.

Stocks Pop and Drop on High Volume

Today’s start to the day appeared as if the market as about to resume its bullish trend. Economic data was non-existent besides a disappointing Flash PMI out of China. Europe was rallying hard on hopes of an optimal Italian election outcome. By mid-morning it became clear the Italian elections were going to be less than optimal. Sellers just didn’t stop as Europe close, but continued through the end of the session. Volatility soared more than 30% as this uptrend has come to an end. Big Wave Trading’s model has moved to neutral after 3 big distribution days in four days. Today is not what you want to see from the market when you are bullish. We may get a bounce, but this market will need some time to repair itself if we are to get another uptrend. We are in neutral mode as this uptrend has ended. Today’s McClellan Oscillator hit -206.85 an extreme oversold reading. What is funny at the highs of the session the oscillator was neutral. We aren’t that far from the highs and to be in extreme oversold conditions is slightly surprising. It would not surprise us if this market finds some footing and reclaims some of today’s losses. Anything is possible, but after the past 4 days of market action it is clear the trend has changed. It will take quite a bit to turn this ship around. Regardless of what we’ll encounter we’ll be ready. There is quite a bit of economic data that is about to hit the market. Tomorrow we’ll see a lot of home related items, consumer sentiment, and the Richmond Fed. Thursday we’ll get another read on fourth quarter GDP. Last reading we saw a negative reading and expectations are for revisions to put fourth quarter GDP at .5%. While .5% is better than negative growth the mere fact we are only able to grow at .5% is simply unacceptable. Perhaps we need to revisit our economy and the role government has in it. Government has been running trillion dollar deficits since 2009 and we get .5%? It is quite pathetic. It is time to demand better. A bounce would not be unexpected here as we are a tad oversold. However, it is clear from the past four trading sessions this market is on edge. Short-Term Trends: TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 2/25/2013 149.00 -1.90% IWM UPTREND NO CHANGE 2/25/2013 89.02 -2.21% QQQ UPTREND NO CHANGE 2/25/2013 66.31 -1.24% USO DOWNTREND NO CHANGE 2/25/2013 33.21 -1.16% UNG DOWNTREND NO CHANGE 2/25/2013 19.08 3.92% GLD DOWNTREND NO CHANGE 2/25/2013 154.34 0.90% SLV DOWNTREND NO CHANGE 2/25/2013 28.07 0.86% DBC DOWNTREND NO CHANGE 2/25/2013 27.47 -0.47% FXY DOWNTREND NO CHANGE 2/25/2013 107.35 2.32% FXE DOWNTREND NO CHANGE 2/25/2013 129.55 -0.96% TLT UPTREND CHANGE 2/25/2013 117.03 1.97%

For the Second Consecutive Day the Market Closes in the Red

Another day of selling hits the markets, but at least we did not see the high volume Wednesday ushered in. The NASDAQ dove below its 200 day moving average yesterday and the S&P 500 joined the club today. While both indexes appear to be in free fall mode the VIX index closed lower on the day. Fear seems to have sidestepped this market despite the back to back days of big selling. AAPL had an epic day of selling as more than 37.5 million shares were trading with the stock closing just off the lows of the session. This type of action occurs when you have an over-owned stock being sold and it never ends well. Stocks are hinting at worse things to come and despite QE from the Federal Reserve sellers are ruling the day. Talk over the fiscal cliff is just talk as we’ll likely see the proverbial can kicked down the road. This is what politicians do best is kicking the can down the road. The issue really is how much taxes will rise. You can bet regardless of your income levels you will be paying higher taxes next year. At this point the market is simply trying to price the affect of the fiscal cliff. Spending cuts in the bill are roughly 10% of the budget deficit and not likely to be as devastating as the rise in taxes. We talk about not going over the fiscal cliff, but at some point we’ll have to pay for our debts and the longer we put it off the worse it will be. It is no surprise to us we remain in a sell signal even if we think a fiscal deal will be struck. Price and volume action remain the key in this market. We aren’t about to stick our necks out and try and pick a bottom. Yesterday’s dip buyers were hit hard today and losses are not something we enjoy seeing. Judging by the McClellan Oscillator we are in extreme oversold territory with a reading -147 for the entire market. It is not THAT extreme, but in an area where the market is capable of snapping back. A bounce here would not surprise us in the least. However, if we are to bounce we’ll need to see this market confirm a new market rally before we operate on the long side. Guessing when the market will turn would not be a disciplined approach. Perhaps a rumor of a fiscal deal would reverse the trend here, but it is anyone’s guess. We’ll continue to operate in sell mode and stay patient. Have a great weekend!