From the Trading Desk

Distribution Kicks Off Last Week of September

Led by the FANG stocks the NASDAQ bore the brunt of the selling as the entire market fell on heavier volume. Volume was up 15% on the NYSE and the NASDAQ volume up nearly 25%. A huge spike over Friday’s levels. A late day rally helped take the sting out of the day’s selling, but the damage had been done. Energy was positive on the session as Crude Oil jumped to a $51 handle. It was technology stocks in the S&P 500 who dragged down the index. No real surprise as the NASDAQ was down 88bps on the session. Pundits are blaming fears over North Korea and their threats. We just care about price action and for now we are hanging on by a thread. Not the greatest start to the week as we look to close out the third quarter.

Remember, sentiment has been running hot for the last few weeks. AAII investor survey has been bullish for a couple of weeks. A little pullback here is not out of the question. This is the 5th longest streak without a 5% correction and it would not surprise us if we see some sort of pullback at some point. Many are certainly looking for one right now and will use any excuse to justify the pullback. It is easy to point out valuations are stretched or North Korean’s leaders is just bold enough to launch an attack. We must remain vigilant with our strategy and adhere to its signals. There is no other alternative for us other than to work our strategy that has proven to win in this market.

Now, it would not surprise us we rally on light volume the rest of the week. We have seen time and time again the market simply rebound from heavy volume selling on very light volume. Does window dressing still occur? Yes, it does. However, it happens typically in smaller shops where oversight isn’t as well-defined at a bigger shop. We are still in a seasonally weak period too. October isn’t known as a month where big gains happen. Look for more 1987 comparisons from this market as we approach October this weekend. Each year is different. We are not interested in fighting previous battles during the current one. What may have worked at one point has morphed into something slightly skewed from before. Do not fall into this trap.

AMZN had a real tough day yesterday and is looking like it is in real trouble. A late day rally did help the stock close just above its August low. GOOGL found support at its August lows and rallied closing well above the mid-point of the session. AAPL is still struggling after its launch event earlier this month. NFLX dove nearly 5% after news over another rival is hitting the market. Even MSFT joined the selling fun closing below its 50-day moving average on heavier volume. Not a great day for NASDAQ 100 stocks.

Perhaps somewhat interesting is the ability of banks to hold up here. XLF held up in the face of technology stocks getting slammed. Even IWM finished in the green. A good sign if this market wants to sustain this uptrend. IBB even is holding up. There are some bright spots and we will continue to keep an eye out. Maintaining discipline here is paramount and will determine your portfolio’s performance.

We hope you have a great week of trading as we wrap up the third quarter and the month of September.

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