An Ugly Reversal Leaves a Large Blemish on the Current Uptrend

Buyers took to the market with optimism as news about the Yuan floating pushed prices at the open.  However, the highs set at the open wouldn’t be seen for the remainder of the day as sellers remained in control.  Volume was lower throughout the day, but comparing to Friday’s options expiry is a tough comparison to make.  The market remains mixed and after today’s market it is clear cash continues to be king.

The obvious here is the outside reversal day put in by the major indexes, but the key is volume was lower.  Although the caveat being Friday’s trade was elevated by options expiry.  These types of reversals do lead to lower prices and with the Federal Reserve Open Market Committee meeting this week it wouldn’t surprise me to see the market move lower into the Wednesday’s statement.  The last meeting we did witness the market pull back into the Wednesday statement.  There isn’t any doubt traders will have the Fed on their mind, but pay attention to how the market reacts rather than trying to predict the action.

Monday’s action hit retail stocks and the number one industry Retail-Leisure lead the market lower today.  Retail isn’t an industry you would associate with a rip-roaring bull market, but since it is our leading industry group its weakness today is something to note.  There are plenty of reasons as to why this group had a tough day; perhaps we are seeing industry rotation or even simply the group overall needs to consolidate its recent gains.  The reason doesn’t matter, it is how your stocks are acting and if your stocks is breaking support with volume or any other sell signals it is time to bail.  Keep an eye on leading industries as they will give a clue where the big money is flowing, both in and out.

The S&P 500 had an interesting day as it failed and found support at key moving averages.  Like the NASDAQ the S&P 500 was rejected at its 50 day moving average.  Early on sellers took advantage of the gap to sell into and continued to sell throughout the day.  Sellers were able to push down the S&P 500 through its 200dma.  Just as it appeared the S&P 500 would crack wide open at the close support flew and and pushed the S&P 500 back above that all important 200dma.  Pay attention to support levels as heavy volume failures will lead to lower prices.

The market needs to consolidate its move off the recent lows.  At this point, not much will surprise me here.  Cash remains king and until we find better footing it would be prudent not to get too ahead of yourself.  Stay patient and always protect your downside.