Sellers Land a Big Blow to the Market

Portugal and Greece debt fears gave sellers all the excuses they needed to hit the market.  Volume was runny hot throughout the day, but as Portugal and Greece were downgraded sellers took full advantage and pressed hard.  Panic certainly stepped in, but this time supply appears to have outstripped demand and the market teetering on the verge of a correction.  Many leaders took it hard on the chin, some did hold up, but too many are finding themselves under pressure.  Today was a clear indication that the market has morphed into a new character as leadership and price action weakened considerably.

Small cap stocks took it on the chin real hard and are beginning to look like they are about to fall into correction mode.  The Russell 2000 fell under pressure.  Price and volume are giving and indication that demand simply can not meet demand of stock.  Most likely scenario is we will roll over as selling pressure is likely to continue.

A last minute rally did relieve the pressure, but it wasn’t enough to cover up the selling on the day.  Fear is back as the Federal Reserve is set to release its policy and rate decision Wednesday at 2:15 pm EST.  Regardless of what their language may or may not be it very well could provide the downside catalyst many bears are looking for.  The market is under pressure and is flashing a warning signal.

There were a few leaders that did hold up, but a vast majority of them fell under heavy volume selling.  When an overwhelming majority of stocks do not hold up in the market is best to yield to their warning.  If you have a stock that has succumbed to selling pressure it is best to lock in gains before the selling persists.  The same goes to if you have yet to take any gains just yet, it is time to take it off the table.

This most recent rally beginning on February 5th has gotten long in the tooth.  It has yet to consolidate any of its gains, but we have had a great ride.  We could see stocks settle around this area as anything is possible.  However, we do have a number of distribution days on the NYSE indexes piled up high except for the NASDAQ that only has 3 days worth of distribution.  We should note that Friday and Monday were notable as the market hit new highs without having volume pile in.  Not too mention volume selling came into the NASDAQ at the end of the day on Monday.  Back to back days we had the indexes suffer end of the day selling which we haven’t seen since February 4th.  Is this the end?  It is anyone’s guess but the recent action does indicate a correction is very likely in the near future.

Uptrends will undergo various corrections of varying depths.  So far the SP 500 and NASDAQ have yet to see a price decline of greater than 8% and neither index has corrected back to its 200dma.  Normally, by now, most uptrends would have corrected to their respective 200dma before resuming the uptrend.  Given the high amount of New Highs and large breadth last week as we hit new highs it indicates that we haven’t hit an ultimate top just yet.  Can this be wrong, yes, but history is our best guide and it says we can still go higher in the longer term.  In the near term and even intermediate term it appears we are rolling over and its best to take precautions if your stocks are telling you to take caution.