Nasty Reversal Leaves Sour Taste on the Day

What appeared to be the beginnings of a bigger move fears regarding light demand for US treasuries and Greek’s bailout.  The first shot across the market’s bow was a weak treasury auction, showing investors aren’t thrilled with the continued oversupply of US debt.  On top of failing US treasury bond auctions word out of Europe a bailout of Greece would be bad.  Sellers needed no more help to put the pressure on stocks  By the end of the day although stocks were just off their lows it did leave a black smear on the day.

The stock doing the most damage on the NASDAQ was Apple Inc (AAPL).  One might imagine this would be a troubling sign, but taking a look at the stock it doesn’t appear the end for the stock.  Volume came in lighter from the prior day and it was below the 50 day volume moving average.  It is quite normal for a leading stock to pull back in light volume.  The bottom line, the action of this leading stock isn’t screaming a sell.

An interesting development was the number of bulls and bears.  AAII survey showed a significant rise in bears to 36% while bulls from 33%.  This is quite interesting development where the market hits a new high and rather than the crowd cheer, it gets bearish.  Normally, we’d see the number of bulls rise.  Perhaps, it is a new paradigm.

If you are holding a stock that did reverse on heavy volume and breaking support you will want to cut your losses.  Stocks will roll along, pullback, and break into new high ground.  Holding through the ebbs and flows is very difficult as you will feel the urge to protect your capital.  However, to hold onto a monster stock you will need to learn to be able to sit through a low volume pullback.

Tomorrow’s GDP will certainly provide fireworks in the morning and with expectations of 4th quarter growth at 5.9% may be too high.  Or it may not, the lesson is guessing is simply gambling.

Cut your losses and weed out stocks that aren’t acting right.