Disappointing economic news was overshadowed by the Greeks as fear over acceptance of the Euro plan was in doubt. We live in volatile times and until the market sniffs out real leadership we’ll have market reacting the way they do. Volume surged today well above average as institutions stepped up their bid to sell down holdings. Heavy volume selling is never a good sign and we should take warning. What is striking about today’s action as the end of day dump into the close. Institutions wanted out in a big way into the close. Back to back Distribution Days on the NYSE has this market on notice and we must be prepared.
Today was a reminder to those who chase stocks higher that it is a dangerous game to play. If you buy right and the stock doesn’t work out you can limit your loss to a small amount, but if you chase losses can explode and get out of control. Discipline is paramount in this game we call the stock market. Where traders get in trouble is when they get away from their game plan and hoping their trade will work out.
Tomorrow is will be an interesting day with the conclusion of the Federal Open Market Committee. We’ll get a rate decision, but with rates already near zero it’s unlikely the committee will lower them any further. In addition, the market pundits will look to see whether or not the committee will engage in any new, NET NEW bond buying. The current operation twist does not pump any more liquidity into the market and any hint of raising the asset purchases of longer duration bonds would signal a third round of money printing. Excuse me, quantitative easing. We’ll sit back and enjoy the fireworks and adjust as the price and volume come in. Trend following does not take into account our feelings on the market.
What a week this has turned out! Last month we saw similar action on the first day, the only difference was we were hitting new lows and not coming off new highs like we have now. For now, we remain disciplined in our approach.
