Overnight the market was hit with a Chinese PMI figure hitting an 8 month low, but would initially shrug off the weak figure. Markit released its US Manufacturing and while it was weaker than expected it still showed the US Manufacturing sector had expanded. It is nice to see we have a manufacturing base expanding. However, the market is more likely concerned with the Taper and fears over short-term rates beginning to rise and thus we see sellers push down the market. Whatever the worry may or may not be we don’t have to worry about it as we are simply following price. Volume is an ineffective tool when coming off quadruple witching Friday’s and today it is too difficult to discern. While the NASDAQ and Russell 2000 are above their respective 50 day moving averages there is enough weakness to warrant extreme caution. We continue to navigate tricky waters and will continue to heed our market model signals.
The NASDAQ currenlty concerns us with its move below its March 14th low. To add insult to injury volume today was much larger than March 14th a negative sign going forward for the NASDAQ. Despite AAPL appearing to be holding up relatively well the entire NASDAQ is not agreeing. GOOG and PCLN have been tremendous for the NASDAQ and both of these stocks are not looking particularly strong at the moment. We could simply point to rotation from one name to the next, but we don’t have enough evidence this is about to occur. FB has been a leader and it too is following along the same path as GOOG and PCLN. TSLA found support at its gap from earnigns, but today’s heavy volume selling leaves the stock in iffy territory. Weakness has found the NASDAQ and there is some serious work to be done to reverse this current flurry of selling.
A danger here for many will be the response to the selling as the sky is falling and we are going to collapse. No one person has any clue where we are heading. While many Fed sympathizers will point to this just being a normal correction to the others will say the Fed has lost their control and the market now sees any action as meaningless. The spectrum of opinion is not boundless in the universe of the pundits. It is best to ignore them and follow price patterns. For instance let’s take a look at SPY: First is a SnapChart with ATR and the next a P&F.
Notice ATR is increasing here despite any upward/downward movement in SPY. Some may say that is a negative. However, the P&F chart using the same ATR parameters says we are still okay price wise. ATR is a great tool to gauge how much wiggle room you have with positions. Right now, it is saying give this market some room. However, if we happen to break down through our price channels we’ll obey those signals and step aside. Follow your signals.
The start of the week wasn’t what many would want to see, but we simply move to the beat of the market’s drum: price.
