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.

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.

The Market Remains Oversold and Unable to Rally

A late day push helped the market from closing near the lows of the session. Disappointing bottom callers the market was couldn’t rally and close into positive territory. Volume dropped from Wednesday’s level, but at this point we’ll need to see a heavy volume reversal to signal any sort of bottom. Financials helped the S&P 500 from sliding further as the XLF found support at its 200 day moving average. Despite the help from financials the market could not overcome the pressure put on by sellers. Our sell signal has been a big winner for us and we remain in our sell mode. Tomorrow’s option expiry should bring in volume, but it will be interesting to see how the VIX reacts to options expiring. At this point we have yet to see the VIX jump showing fear has crept into the market. Given we have yet to see capitulation it is hard to fathom we saw any sort of bottom today in the market. It was nice to see financials rally, but it was only one group to rally while the rest of leading stocks took a beating. We could be just around the corner from a bottom, but the real question will be is when we do bottom how deep will it be? Why trend following works very well is you do not need to know how deep or how high a market can go as an investment decision. A disciplined approach is how we are able to take advantage of the markets. Defined entries and exits takes the guess work out of deciding whether or not if you get in or out of a position. Guessing a bottom in the market is just silly and has yet to prove fruitful. The allure of catching a bottom is simply too much for some, but you’ll notice they never make it long term. Stick with a disciplined approach and Big Wave Trading. Have a great weekend and remember to cut those losses short.

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!

Market Finds Relief, but Volume Fades

The NASDAQ managed to regain its 200 day moving average, but light trade confirms institutions aren’t willing to stick their necks out supporting this market. A positive ISM Non-manufacturing figure gave a bit of a boost to the markets. However, the European close provided sellers an excuse to tackle the market. In the end, the markets put in a nice day of gains. We are still a long ways away from getting a healthy market with the lack of volume on the upside. Until we see improvement we’ll continue to see lackluster trading. The fear trade lost traction today as the VIX lost its 200 day today. The index regained its 200 day Friday of last week when the NASDAQ and S&P 500 dove below their respective 200 day moving average. We did not see panic rush into the market during this decline. Panic begins with the VIX racing above the 30 level and so far investors have yet to panic. Sentiment is on the bearish side, but actions have yet to show any capitulation. Tomorrow we’ll get a few economic releases, but the big one will come out at 2pm eastern standard time. The Federal Reserve will release its Beige Book and the market will certainly get active around its release. Every market pundit is foaming at the mouth with the possibility of the Federal Reserve introducting another round of Quantatitve Easing. It is a sad state of affairs when the addict can only survive on the drug. For trend followers we simply do not care if QE will show up or not. Price will always be the first mover and we want to be onboard. Drop the opinions and follow price! Believe it or not today is Day 2 of another attempted rally for the stock market. It is nice we are above the 200 day for this rally attempt. At this point a rally confirmation is on the low end of the spectrum. We failed to see any panic/capitulation in the market and have yet to see any high volume reversal to the upside. However, a confirmation day here would certainly change our tune in the short-term. Until then, we’ll wait patiently and continue to operate under a sell signal. Cut those loses short.