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We were looking for volume and we sure go volume today right from the get-go. Volume surged as trading opened pushing stocks higher. Just after 10:00am EST it was apparent the stalling nature of the market and its inability to push higher on volume was troubling. As volume flooded the market the major indexes found it difficult to gain much traction. Sellers were able to take hold for the remainder of the morning and much of the day sending stocks to lows. Leadership was being taken to the woodshed, saving them was a late day support. Support was able to work itself into the market at the end of the day sending the NASDAQ and Dow into positive territory. The “chop and slop” continues as this market continues to grind forward.
It was important to see above average volume, but on a day where the S&P 500 broke a key support level we simply can not get excited about today. Raising a red flag outside of the wild price action was leadership getting hit hard. Leaders were down much lower than the major averages suggesting the lift in stocks was quite simply shorts racing to the exits. In last nights wrap, the post explains the reasoning for my view that this market is in correction mode and therefore today would be Day 1 of an attempted rally. I am looking for leadership to tighten up and gain its composure and lead if we continue to see volume come into this market. If the market can pull back here in lighter volume or move higher with volume it’ll be a positive sign. Without a push higher on volume and leading stocks taking the lead our “chop and slop” will continue to be the dominate theme of this market.
The Dow’s earning season kicked off with Alcoa reporting after the bell and beating expectations. Many on Wall Street were anticipating the release of the earnings as they are viewing it as a temperature check on the state of the economy. More importantly, their view on China and whether or not their stimulus was going to spawn new growth for the country. With copper prices looking bleak, aluminum prices more than likely will follow suit dampening the ability for Alcoa to fatten the bottom line. If Alcoa can show some buying interest it may help shed a positive light on the “global recovery.”
The market has proven that Cash is King at this point in time as it has done a good job attacking leadership. This is why we stress cutting losses shorts and being able to take something off the table when you have gains. We aren’t in a market environment where you can expect to be patient and hold for massive gains. You must be able to take some of your position off the table when it shows you nice gains. A general rule of thumb is to take profits when a stock shows you a 20% return. Here and now it may be as low as 10%, but be mindful you aren’t unloading your position. Simply taking a portion of the trade off the table will help protect your profits from turning into losses.