The beginning and end of day action were quite the opposites today. Clearly institutions were selling hard in the final hour pushing stocks back to near session lows. Nothing is surprising in this market, but when you have the market getting support only to be sold is never a good thing. A bright spot on the day occurred after the market close with CSCO posting its earnings. The stock is up more than 7% in after-hours trading are things really that bad? Certainly the fiscal cliff issues will be resolved, but is the market looking ahead beyond the fiscal cliff? At the moment what we see is heavy volume selling and we remain in sell mode.
The S&P 500 and the NASDAQ breached their most recent lows resetting the rally attempt day count. For now, we are waiting for day one where the market closes in the green. On a rare occasion we can get a down day being day one, but only if we close at the highs of the day with strong volume. These are very rare, but for now the long side does appear to be a ways away. For one, we do not have capitulation nor do we have a spike in the VIX to think we’ve seen a meaningful bottom. Currently the VIX sits at 16.64 signaling very little fear in the market despite this most recent correction. We are oversold, but without any capitulation and fear it is hard to believe any rally will be sustainable.
Regardless of sustainability we do need to obey the market and follow its lead. If we do make a run for higher ground with volume we’ll follow. Our opinions of the market are simply opinions, but we know price rules all. The VIX could easily sink into single digits and we have the S&P 500 making a new high. It is anyone’s guess, but for now we have a market extremely oversold without a hint of hitting a meaningful bottom.
We can slice and dice an argument for the market to rally here. Just because the market is oversold doesn’t mean we have to do much of anything. No one can predict the future. Cut those losses.
