Distribution Strikes but Volume runs Below Average

Like last week’s Tuesday’s session the market staged a higher volume reversal. Last Tuesday the market staged a similar reversal, but was quickly erased within two days. Today’s move was a bit more sinister as volume was a bit higher than last Tuesday’s. In addition, AAPL’s reversal was something to take note of. AAPL’s run has been nothing short of amazing despite its low volume jaunt higher. Today’s reversal does put the stock on notice. However, we aren’t about to go all out short. We’ll certainly need to keep an eye out for how the market reacts over the next few days. Any further distribution will certainly spell an end to this market rally. Today is a warning shot and the rest of the week will be very important.

Interestingly enough the VIX rallied off its lows in a very bullish nature. Expected volatility still remains at its lows. What is interesting is the move in Gold and Silver alongside the VIX. Gold and Silver usually price in expected inflation and inflation usually correlates well with a rising stock market. Can both precious metals and the VIX rise together? At the moment, we know Gold and Silver are moving higher and have begun a new uptrend. The VIX on the other hand has yet to signal a new uptrend. However, today’s action is quite bullish and a new uptrend may be on its way for the fear index.

It is far too early to tell if this market is about to fall flat on its face. From June lows to now we have been on a run, a bumpy run, but one nonetheless. Profit taking can always be expected after a few months of a rally. The key will be to see if distribution piles up and leading stocks show major selling. We have seen weakness and thinning of leading stocks so a pullback in the market overall would not surprise us. However, if distribution really piles on we’ll certainly expect something more than just a bump in the road for this uptrend. Follow price and do not allow your emotions to take over your trading.

To add to the confusion we are going to get the release of the Fed Meeting minutes tomorrow after-noon. The Fed at its last meeting failed to signal any further easing, but the market will be looking to see if the FOMC discussed a new easing program. It is anyone’s guess how the market will react, but it will be interesting to see if the FOMC discussed a new program. You can bet if there was a new program discussed you will see the market respond swiftly. Again, we’ll see how the market reacts and act accordingly.

Stay the course and remain disciplined! Cut those losses.