Stocks Claw Back after European Stocks Fall Hard

European stocks fell hard on Cyprus fears and continued economic slump the Southern Europe states are in. Cyprus, Italy, Spain, and now Slovenia are in the midst of falling stock markets and higher cost to insure debt. Pending home sales were slightly disappointing, but the market rallied off the disappointing figure and continued for the rest of the afternoon. The NASDAQ was able to close in positive territory while the Dow failed to notch another all-time high. Volume rose on the day, but remained well below average. The past two trading days has seen NASDAQ volume the lowest for this year. Volume continues to be non-existent despite this market continuing its uptrend. Institutions are either continuing to stay on the sidelines with cash or they are all-in. We can make all sorts of guesses, but we do know activity in the stock market continues to slide lower. Short-interest ratio continues to be high because volume is low. Actual short exposure measured by total shares outstanding is at a five year low. Things are not as they appear and we can certainly blame Quantitative Easing for the state of the markets. However, if you employ a trend following system based on price these matters simply fade away. It is important to stick to price and ignore the noise. The prevailing theme from market pundits is QE will continue to push stocks higher. While this may be true do we know this to be fact? Can we say QE is a tail wind or a wind at all? We do know the Federal Reserve’s balance sheet is highly correlated to the S&P 500 and why would this change? What if it does change? Do you have a plan of attack? Do you know when to head for the exits? Often times assumptions are made, but a plan of attack is never hatched. We do not know the future, but we can identify potential trend using price as our guide. Tomorrow we’ll get another read on GDP and the market is looking for .5% just like last month. To add some flavor to the day it is also the last day of trading for the month of March. Enjoy the last trading of the month! Cut those losses.

Global Markets Header Lower as Cyprus Mulls Bailout Terms

Over the weekend the biggest news story was the Cyprus Bailout news. The terms of the bailout had depositors losing roughly 10% of their deposits. World markets reacted negatively from Asia to the US, but unlike Asian markets Europe and the US markets were able to rebound from the lows. A bit of a blow to the housing market was a dip in NAHB survey registering at 44 down from 46 in the prior month. This did little to hold back dip buyers from pushing the markets back into positive territory by the afternoon. However, the last hour saw sellers hit back and send the indexes off their highs. Volume ran lower than Friday’s level inflated by quadruple witching. We remain in an uptrend despite today’s open and we’ll remain operating in an uptrend. Why the media is making a big deal over Cyprus is the theft of depositor cash. Cyprus is a safe haven for many Russian Oligarchs and their cash. While it is easy to say the rich should pay, but to steal deposits to increase private cash in bailouts is a tough pill to swallow. The real fear is if this will be the norm in future bailouts in Spain and Italy. At some point these two countries will likely need a bailout unless their economies miraculously begin to grow again. How safe do you feel your cash is in the bank now? Could you imagine if the Federal Reserve and the US government had taken 10% of deposits in 2009? The EU is in unchartered territory and this will be something to watch from a non-trading perspective. At the open the market opened in quite the oversold territory according to the McClellan Oscillator. The indicator has not been keeping up with the market highs suggesting the strength in the move is not sustainable. Anything is possible, but at extremes this oscillator does offer some value. Let’s not forget the Federal Reserve kicks off a two day meeting tomorrow and releasing their policy statement on Wednesday at 2pm. I do expect to see the market to at least drift higher into the Fed meeting where we’ll hear how accommodating the Fed will continue to be. When you boil it down it comes to price. Know your exits.

European Fears Renew as Stocks Fall; VIX Jumps

Europe kicked off the selling with Spain and Italy taking on the brunt of the selling. The DAX fell 2.5% as the index fell in heavy volume erasing last week’s gains. Volume on the state side fell, but Monday’s have been light in general. Technology stocks led the decline followed by financials as NFLX bucked the trend and pushed higher. The VIX jumped above the 14 level as the fear index jumped to its highest level since the 3rd of January. Monday’s close didn’t help out the situation as sellers had the upper hand sending the market to the lows of the session. Today is just one day, but we did see a slight change in character as we have seen the market get support in the final 30 minutes. Our uptrend remains, but we are certainly on watch for our exit signals. It is no surprise Europe is back in the spot light has they have tried to implement protections that are simply band aids rather than real solutions. Iceland is a great example of what should be done, but the Central Banks are in control and would be overrun if Europe went the way of Iceland. Spain and Italy have been pounded by sellers with the DAX finally feeling the heat. In addition, Europe is facing a EURO who has been on a tear against the Yen and US Dollar. Exporters are feeling heat and with the Eurozone needing exports to fuel their economy their currency is not helping. Price action suggests further destruction. The first week of February has not started off well with today’s move. We were quite overbought after the big move in the market from the morning of December 31st. A rest here would be normal, but with the big declines in Europe a “rest” may be quite volatility. Stick with discipline and your plane and execute! The debate over the “great rotation” continues amongst market pundits. With the Federal Reserve buying $85bln in bonds a month how will yields go higher? If you aren’t going to fight the Fed in the stock market why would you fight it in the Bond market? Just follow the trend and it will treat you well. Short term Trends: TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 2/4/2013 149.54 -1.12% IWM UPTREND NO CHANGE 2/4/2013 89.28 -1.21% QQQ UPTREND NO CHANGE 2/4/2013 66.48 -1.74% USO UPTREND NO CHANGE 2/4/2013 34.78 -1.61% UNG DOWNTREND CHANGE 2/4/2013 18.67 0.70% GLD DOWNTREND NO CHANGE 2/4/2013 162.00 0.34% SLV UPTREND NO CHANGE 2/4/2013 30.69 -0.29% DBC UPTREND NO CHANGE 2/4/2013 28.48 -0.35% FXY DOWNTREND NO CHANGE 2/4/2013 106.24 0.64% FXE UPTREND NO CHANGE 2/4/2013 134.06 -1.06% TLT DOWNTREND NO CHANGE 2/4/2013 115.54 1.28% UNG change in trend. Good news for those who heat their homes with natural gas!

Stocks End Recoup Some of Monday’s Losses; Volume Mixed

The markets did their best to rebound from Monday’s sell off, but fell short. Volume ended mixed on the day with the NYSE volume coming in lower and the NASDAQ coming in better than Monday’s levels. Economic data was disappointing with Consumer Confidence and the Richmond Fed disappointed with lower than expected readings. Case-Shiller report on housing was better than expected, but still showed housing prices fell overall. Today’s market closed was a bit disappointing as the major indexes clsoed off their highs. While today’s green close is a step in the right direction there is much more work to be had if this market wants to rebound. Angela Merkel’s debt sharing comments did send stocks immediately lower, but the market was able to rebound and push higher. Perhaps mutual funds looking to deploy cash for month end reporting had something to do with the move, but anything is possible. The action today was very much like Friday’s market action trying to recover from prior day losses. We remain in sell mode despite the rally today. Tomorrow we get durable goods figures at 830 followed by pending home sales at 10am. However, market pundits will likely look to Thursday’s arrival for first quarter annualized GDP figures. The market is looking for growth of 1.9%. Our economy is not humming along as it should and worse of all we are bumping up against the business cycle. Every 4-6 years the economy enters into a slowdown and by all indications our economy is about to enter into one. Any disappointment should usher in lower equity prices, but we’ll simply follow where the market will take us. Who knows? A very negative number could usher in a new round of quantitative easing! In the end price matters and rules above all else. Price destruction going on with European stock indexes is quite extraordinary. Germany, Spain, and Italy are three looking mighty vulnerable at the moment. All three remain in downtrends and especially scary is the German DAX index. The Germans are the ones holding up the Euro and with the weakness in their stock market certainly speaks volumes. Europe will drive a lot of the conversation and certainly will weigh on the minds of traders globally. Cut those losses short and enjoy the ride.

Markets Say No to Spailout, Stage Big reversal

The EU bailout of Spanish banks was received well when the futures market first opened Sunday evening. Sellers dominated the day as the markets sniffed out and disapproved of the Spailout. US equity markets did enjoy a good start, but selling was unforgiving and relentless heading into the close. Volume was higher than Friday’s dismal showing. At this time, volume is not going to matter as price action is clearly on the negative side. Price action says it all and it is not saying good things about this market. Not helping matters was AAPL’s big reversal despite its annual June meeting. AAPL did not announce any new amazing new product like apple TV or a new iPhone. The stock now appears to be failing at its key 50 day moving average suggesting May’s lows may be the next target of the stock. GOOG has already had a head start on AAPL as the stock put in an ugly reversal day. Both tech giants do not look healthy at this point and will continue to put tremendous pressure on the NASDAQ if selling continues. Volatility kicked it up a notch today getting support as the market digested the news out of Europe. The VIX jumped right off its 50 day moving average today and certainly shows a bit of a fear coming back into the market. At May’s lows the market failed to produce any sort of capitulation. The VIX never made it above 30 a key level where panic enters the market. Until panic enters the market we’ll likely continue to see lower lows and lower highs in this market. Adding to the mess we call a market will be options expiry. Greek elections are being held on Sunday and combining the elections with Spailout options expiry will certainly add layer of complexity. It is crucial we stick to price action of the market rather than guessing what might happen if the Greek elections go one way or another. After today it is pretty clear the bias is still negative. Stick to your stops and cut your losing positions. Your long term success in the market depends on it.