The Market Fights off the Chinese Sell-Off as Volume Surges into the Close

While many on Wall Street were asleep the Chinese markets were selling off and selling off hard.  The Shanghai shed more than 6% by the close; volume was lower but with such a nasty decline it continues to spell trouble for the index.  Once again the ripple affects were seen throughout the global markets.  As our markets opened it looked all doom and gloom for US stocks.  Volume from the onset was much lower than Friday’s volume and continued to remain behind Friday’s levels for much of the day.  Stocks skimmed the lows for much of the day and each and every attempt to make a run was sold.  It wasn’t until 3:30pmEDT when stocks were able to sustain a move higher.  In addition to the gains volume began POURING into the market as stocks moved higher.  The volume push was enough to send the NYSE indexes into distribution territory marking 5 days worth for the Dow Jones Industrials, 4 for the S&P500, and 3 for the NYSE composite.

Tough to call the NYSE indexes a days worth of distribution as the bulk of the price declines was done on lighter volume.  The volume surge at the end of the was plenty enough to make up for lost ground from Friday’s levels.  Although the buying wasn’t able to rescue the indexes from negative territory it certainly buffered the impact of the selling.  This type of action is more accumulation than distribution; not too menton much of the day felt like it was dominated by short sellers.  In any event, the end of day rally was certainly a positive thing for stocks to have happen.  It was also a positive that selling was unable to pick up steam and add to losses from Friday’s session.

Now we do have an elevated distribution count for the Dow and S&P 500 indexes.  I am hesistant on the Dow simply becuase of today’s action, but we must keep in mind that when the market flashes 6 days of distribution it is time to be cautious.  We have yet to see heavy distribution days within close proximity of each other but we did see a few stalling days last week.  Stalling does not necessarily mean the market is on the verge of collapse or even rolling over.  It is key to pay attention to the days surrounding the stalling and didn’t see any nasty distribution days hugging those days even though Friday was real close. Trimming back larger positions that are appearing to be acting “incorectly” is more than a sound decision but more than likely a right one.  Still need to be cautious in this environment and until we can get clarity we’ll simply play the hand that we were dealt

The market will be focused on the ISM Manufacturing and ISM Prices Paid on Tuesday morning @ 10 amEDT.  If the number disappoints we’ll be seeing selling take on a whole new meeting.  However, like many of the other manufacturing indicators this one may come in higher than expected.  From the Dallas Fed to the Richmond Fed we have seen these numbers come in above expectations, but have lacked that fortitude to get equity prices into high gear.  ISM will provide fireworks, the question is whether or not the fireworks it produces is something you want to stick around for.

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