From the Trading Desk

Stocks Fall Hard as Distribution Mounts

Thursday’s stock market action was quite telling with a high volume down day resulting in a day of distribution across the board. Losses were heavy across the board and now with 9 distribution day’s the NASDAQ appears weak enough to move back towards its 200-day moving average. Since June the QQQs have endured heavy distribution, but has been able to stay afloat. However, 7/27 action and now the recent action has put the NASDAQ in a position of weakness. Should we mention seasonality again? The S&P 500 has held up better, but it too appears to be in roll over mode. It would not surprise us to see major market averages head towards their respective 200 day moving average. Unfortunately for IWM its already there. This is not the time to be a hero and try to dip buy this market. The VIX hasn’t reached above 20 since before last year’s election. The market is throwing caution to the wind and we are certainly taking note. Be prudent and disciplined in this market environment.

BABA reported earnings Thursday morning and gapped to the upside yesterday. It did well holding most of its gains on the session and remains in a nice uptrend. Despite the overall market this leader remains strong. Those who are holding it did well, but for anyone not in the stock it may be some time before a proper long signal is triggered. It has been a heck of a run for the stock since the beginning of the year.

Perhaps an interesting development from the past week is the results from the AAII Investor sentiment survey. For the week, those who were bullish rose .5%. Yes, Bulls went higher even after last week’s decline. The number of bulls inched higher. Bears jumped too, but by the same amount as Bulls and remained in the minority. Perhaps after Thursday’s action they will sing a different tune. It certainly gives credence to the fact lower prices are a higher probability than if the number of Bears were a lot higher. We’ll sit back and continue to operate as we normally do and let price be our guide.

We have been warning over this type of action for quite some time. July was a decent month where we saw the market climb on light volume. The positive here is the yield curve continues to remain normal. If we do see some inversion we’ll point it out. If longer term rates invert it would be a signal to us the economy is headed towards something a bit more sinister than what we have seen the last few years.

Go out and have a great weekend. Trading is great, but we all need to enjoy life and live each day to its fullest. Otherwise, why are we here? We hope you have a great and safe weekend. Be kind and we’ll see you next week.

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