From the Trading Desk

Final Hour of Trading Sours Day; First Distribution Day in 2 Weeks

The final hour of trading sent stocks lower as the NASDAQ has its first distribution day since the 17th of May. Volume was running higher than Monday throughout the day, but selling picked up as the market closed out the session. In a positive development it was no the Russell 2000 leading the market decline. The NASDAQ 100 led the decline as the index finished lower by 36bps. Losses were not awful, but the final hour collapse changed the tune for our short-term outlook. Many are likely to bail and call a market top, but we know after a long run of hardly and multi-day declines the market will at some point pull back more than 1-2%. Stops will be adjusted accordingly, but we are not going to call a market top by any stretch of the imagination. We’ll let the internet stock market gurus do the top calling. Not the finished we would have liked, but we still remain in an uptrend.

Since the election last November we have not seen the market have any sustained downtrend. Sure in Mid-April we closed below the 50 day, but it did not even last for the day. We have continued to see strength and this market is able to fend off any whiff of selling. Now, had the Russell 2000 index led today’s decline it would have been a bit more ominous. This market has had a habit of continuous rotation and it would not surprise us money leaves the low volatility world and enters back into more risk assets like small caps and/or high beta. We will, of course follow price action and if high beta names become the flavor of the month we’ll have price signals. If not, we will simply follow what is moving higher.

We will have to see how if this selling intensifies or was just the final hour. Again, we have yet to have any resemblance of a correction like you’d see prior to 2008-09. This market has evolved from all the world’s central banks pumping trillions of liquidity into the economy. You have to adapt otherwise you will be left behind. Think about ZeroHedge and following their investment advice? How many times have they called for the market to implode? We are not here to say we won’t implode, but we definitely will not ever call for a market correction or even a new bull market. We simply want to follow stocks moving higher. Get long and ride their wave. No need to overcomplicate things. As long as you cut your losses short and use proper position sizes you will have success. Sadly, too many try to overcomplicate to look smart rather than making money. Surprisingly, there is a difference.

Contain your losses and maintain a high level of discipline. We will see what tomorrow will bring.

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