Wednesday’s action lacked buying support as stocks were unable to find any sign of support as the major indexes finish in the red. ADP report showed a larger than expected drop in the number jobs sending a sour taste in trader’s mouths and kept buyers on the sideline. Volume ran much lower throughout much of the day and on the NASDAQ it ran MUCH lower than Tuesday. Today’s action was neither here nor there, a positive note was stocks did not continue lower on volume. Without an abundance of quality growth stocks setting up it is difficult to have a positive outlook in the near term.
Slowly but surely the number of stocks over their 200dma continues to creap lower pulling back from extreme levels. Taking a look at the number of stocks over their 20dma the number has dropped to 34% from over 85%. While this may look like “enough” to pull back there isn’t a magical level where we can say whether or not we’ve seen the low. These types of figures are secondary to price and volume, but can offer some insight to the market and its direction. The number of stocks over their 200dma remains elevated above 88% and it may take awhile for us to see these drop.
Gold broke out of recent consolidation, but the group lacks top growth in key fundamentals. This won’t keep some of these stocks from moving. The strong breakout in the commodity suggests it has room to run to the upside. For those in the Big Wave Trading chat room were able to take advantage at the breakouts that were occurring in gold stocks today. Going back in history we can see precious metals tend to be a leading group when the 200dma’s slope turns positive. If history holds true, we should see the group and commodity to move higher.
It really call comes back to leading growth stocks and how they fit into the bigger picture. At this point in time we have yet to see these type of stocks take the next step and lead this market. The junk-off-the-bottom can only take this market so far, we’ll need fundamental growth stocks to take charge. Given the economic climate we have just witnessed it is tough to say we’ll see stocks with extraordinary EPS and sales growth. We may not see these Monster Stocks, but at this point in time the water is to murky to tell one way or another. There are plenty of stocks that have very nice earnings growth, but lack the sales growth or vice versa. It may take another quarter or two for the market to cough up the stocks with explosive earnings, sales growth with stellar chart patterns.
Getting back to another history lesson, along with precious metals emerging markets tend to be the leaders coming out of the gate. Small caps as well perform VERY well over the same time period after the 200dma’s slope turns positive. It is worth noting because the Shanghai Index is going through a correction at the moment and is trying to find its footing. In addition to the Shanghai, the BSE Sensex (India) appears to be consolidating nicely was well.
At this point we may very well bounce around, but we don’t have a clear trend in either direction. Could this be just a major shakeout, rotation into the names that will lead us higher? We don’t need to have the answers to this question right now, we’ll just need to be able to react with speed if we do move higher. On the flip side, if this is the beginning of a bigger correction we’ve raised enough cash and can quickly cut losses to avoid disaster.
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