Following through on yesterday’s poor action sellers hit the market hard once again today. End-of-the-month volume pushed the market to a distribution day across the board. Today’s session knocks us back into neutral mode as this selling pressure continues to increase. Individual stocks continue to get whacked and patterns being blown to bits. The question will now be whether or not this becomes buy the dip or something more sinister like we saw in late summer of 2011. For now, we will simply operate under the neutral signal and see where this market heads next.
Unfortunately for the stock market bulls April did not close out as they would have liked. II Bulls ended this week at its highest level in the past 3 weeks as the spread between bulls and bears continues to be at historic levels. AAII bulls finished at 31% for the week, but the story continues to be how many are neutral. 47% of the AAII survey respondents are neutral. So much for having conviction. Even as the market was selling off this week the NAAIM Exposure Index rose to 90%. Keep in mind the survey closes Wednesday evening and active managers were heavily long. Sentiment continues to favor the bulls, but we are not seeing euphoric figures.
Our view on the Federal Reserve and its view of raising rates is simple: they aren’t. Interesting to see who two ETFs are trading will tell us something. TLT has been trading as if the Federal Reserve is about to raise rates. However, today we see the ETF find support. Sure, it is one day and we will certainly keep an eye on it as we move forward. XLU is certainly interest rate sensitive and while today it was lower the sector found support at the end of the session. Keep an eye on these two ETFs to get an idea where interest rates are headed.
Caution is what should be warranted here. We are seeing more and more breakdowns. Even stocks like AAPL and FB are reversing. LNKD was blown to bits in the after-hours session. Earnings season is proving to be a tough one this go around. If you are not sitting on a soft cushion with a stock consider hedging/trimming/cutting the position. No need to take unnecessary risk here. Stick with the plan.
Have a great weekend. Aloha.
