Small cap stocks took the brunt of the selling today while the rest of the major market averages dropped more than 2% across the board. The day got going with weak ISM manufacturing data and boy did it miss the mark. While we can assume the selling was because of the data it continued throughout the entire day not letting up. We did finally see the bleeding somewhat stop around 3pm, but we never were able to find enough buyers to push this market well off its lows. Volume was higher on the NASDAQ even when compared to Friday’s end-of-the-month volume. It is clear institutions were out selling down their holdings. It is quite clear we are under selling pressure and will continue to follow our trading plan.
The Dow Jones Industrial average is the worse major index this year down more than 7% year-to-date. Russell 2000 and S&P 500 are not far behind the ancient stock index. Volume to the downside continues to be the staple of this market and we can attribute it to whatever we would like. Many are pinning this action on the Federal Reserve’s taper of its Quantitative Easing program. Sure, we place blame to the taper and make ourselves feel good. However, at the end of the day this does not assist us in our trading and why we do not search for the reason of the move. Trading price action is our path and has treated us quite well.
Tomorrow we’ll get another few economic data points, but Wednesday we will get a read on employment from ADP and then later we’ll see how the service sector performed in January. ADP employment index is looking for payrolls jumping 190,000 for the month of January. This seems a bit low to sustain a big move in jobs for all those who are looking and how have given up looking for a job. ISM non-manufacturing hits the tape at 10am and is looking for expansion. Thursday’s jobless data will simply set the stage for Friday’s big payroll figure. Federal Reserve Bank watchers will have all their analysis ready to “guess” what the Federal Reserve will do with its taper. The noise these folks produce is quite astonishing, but how does it really help you? It doesn’t, they are trying to make you think you need them so advertising sales keep them afloat. Remember, their motive is to make money and everything else is secondary.
This market isn’t making anything easy on folks without a plan. A solid plan assists you during volatile times and keeps you from making irrational decisions. Trade a solid plan by sticking with us.
