In the overnight session European stocks were on the downside putting pressure on US stock futures.  At the open buyers came in early and fast helping the market back up to breakeven before they would be quickly turned away by overseas tensions.  Just after news of a Malaysian Boeing 777 had crashed, sellers quickly jumped aboard.  Small cap stocks were once again leading the charge lower with the Russell 2000 falling nearly 1.6%.  The index has moved into SELL mode for the Big Wave Trading model.  Following the Russell 2000 into SELL mode was the NASDAQ as it fell 1.4% in above average volume.  Leading stocks were hit hard as well tipping the market’s hand we have some tough sledding for longs.  Today’s action was quite telling and we’ll be adjusting accordingly as this market is signaling trouble ahead.

It is Thursday and this means we’ll take a peek at investor sentiment as we typically do on Thursdays.  No surprises, but a continued trend in the AAII survey with those who responded as Neutral continue to dominate the index.  Bulls dropped five percentage points to 32% while bears inched lower to 28.5%.  Neutral responds jumped just over five percentage points to 39%.  II bulls dropped below 60%, but remained in the upper 50s.  The NAAIM Exposure index essentially remained flat week over week.  One thing to note on the index was there were a few managers who had some bearish bets.  Last week, there wasn’t one respondent with a bearish bet.  After today’s sell off it will be interesting to see if the selling continues how it will impact these sentiment readings.

So much for low volatility as the VIX index jumped more than 30%.  What is interesting is we see VXX only gaining just under 10% on the day.   The uptick in volatility doesn’t mean a whole heck of a lot until price confirms a new downtrend.  The tracking ETFs are very difficult to trade and should be avoided.  Until we get a confirmed downtrend look for the VIX index to scream higher.

The uptick in volatility was confirmed in our ratio as it kicked up as well.  While it isn’t in the territory of screaming “correction” we are seeing action in leaders like PCLN telling us caution should be warranted.  Remember, corrections typically begin with an initial decline followed by a reaction rally to only take out the previous low.  We haven’t even seen the first leg down on the S&P 500.  However, the Russell 2000 we are in the midst of the first decline.  Stick with your system and adhere to the signals provided to you by the system.

Have a great Friday and get out and enjoy the weekend.