Friday was not good. It has surprisingly only taken about 1 1/2 weeks but following Friday’s session it is clear the tone of this market has changed, is changing, and/or will be changing even further. Stocks sold off on Friday on above average and heavier volume throwing up another clear distribution day. The distribution days are starting to add up and it is definitely something that must be taken notice here.
On top of the distribution piling up, we have two more indexes joining the DJT under an operational SELL signal. The DJIA and NYSE are switching to operational SELL signals following their confirmation closes below their 200 day moving averages. The DJIA joins its brother the DJT under this signal which the latter received on 5/20/15. Down Theory has proven to be useful once again as the DJT breaking down before the rest of the market was a clear warning sign that something is wrong with the macro environment.
Even crazier, Commodities are rolling over even further after years of downtrending hitting new lows. The only indexes that remain in clear uptrends are the Nasdaq and Nasdaq 100. Outside of these two indexes, everything around the world, in every asset class is clearly downtrending or is range bound. It clearly doesn’t have the look or feel of 2000 but the last time I can personally remember only a handful of stocks leading the overall market in such an extreme matter was then and it looks awfully similar now. 2007 wasn’t even this bad.
Despite the recent selling with some indexes very near hitting short-term lows, the level of complacency compared to the last leg down is much higher. In early July the VIX hit 20. Currently it stands at 13.74. II bulls have also managed to jump back up to near the 50% level. This is very interesting to me personally as my individual stock scans since last Friday have gotten worse and worse each session. I can honestly say that there is not one single stock out there creating a technical pattern that I am “excited” about. Not one. I’ve scanned the entire market already this weekend.
With breadth weakening, my scans looking thin, my personal longer term long positions hitting sell stops or getting near to hitting final sell stops, the lack of bearishness out there, the level of complacency/neutral mentality in the overall market, the indexes starting to roll over, and commodities and transportation related stocks looking extremely ugly I think it might be time to raise our sell stops and start looking at the short side.
At first I believed that this poor action might be earnings season related but we have not really had any actionable earnings winners in smaller cap stocks that are running post earnings at all this earnings season. On top of that, all of the big cap stocks that do gap up are quickly reversing their gains in force and on strong volume. The reversal in GOOGL is just one clear example. Even if the stocks were not finishing higher than where they opened on their earnings beat, in previous earnings seasons, they would pull back in calm rational trading. Not so much this time around which makes me think the big boys are now in a “sell the good news” mode.
The most important, and I can not stress this enough, data point is always going to be seasonality. We are about to enter August and September in the stock market. Since 1950 these are the two worst months for stocks. Historically this is an ugly period. Especially when markets are downtrending coming into it like they are this year. Going back to 1929, August is the 3rd worst month followed by February and then September. So seasonally we are coming into a really bad time for the market. So if you are blindly bullish here I suggest taking off the blinders and taking a look at the bigger picture.
While we have a few sell signals this weekend we are going to probably have more in the next two months. It is imperative that you raise your sell stops on all long positions to the most recent support levels so that we can lock in good sizable profits on our long term winning positions. You must also make sure that any stock showing a small loss or small gain can ONLY end with a small loss or small gain. No big losses allowed here with the indexes clearly weakening.
The good news, for me, so far, is that I did receive another hedge signal on Friday so if a big sell off does occur on Monday I will be at least partially positioned with leverage. MEMBERSHIP ONLY CONTENT I am still positioned heavily long and keeping a hedge or hedges on through August and September offers some protection against a possible market swoon.
Alright. Monitor those stops. I wouldn’t expect too many more new long positions any time soon but I did flag three Insurance stocks that look like they want to buck the trend of the overall market. They are not good enough for me but the options are available if you want them. Have a great rest of your weekend and buckle up for some possible fun times in the upcoming trading weeks. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – DATE OF SIGNAL
ANAC long – +330% – 1/20/15
AGIO long – +125% – 9/24/14
CBPO long – +109% – 10/24/14
SKX long – +104% – 1/26/15
PAYC long – +93% – 10/30/14
EGRX long – +88% – 4/9/15
VRX long – +84% – 11/17/14
RCPT long – +81% – 2/20/15
PANW long – +80% – 11/10/14
VDSI long – +79% – 8/4/14
SWKS long – +75% – 10/28/14
EA long – +75% – 11/10/14
ADPT long – +67% – 5/18/15
BLUE long – +65% – 2/25/15
SRNE long – +65% – 5/18/15
AMBA long – +63% – 5/14/15
AVGO long – +52% – 10/28/14
SERV long – +49% – 11/7/14
SUPN long – +49% – 5/22/15
RDUS long – +40% – 6/17/15
INSY long – +40% – 6/3/15
AMZN long – +37% – 2/25/15
NFLX long – +35% – 5/5/15
DRRX long – +34% – 4/8/15
TREE long – +34% – 6/2/15
DXCM long – +31% – 4/2/15
FIX long – +31% – 3/11/15
ULTA long – +29% – 12/17/14
AYI long – +26% – 1/23/15
