All appeared well in the world with US futures getting a boost from markets around the world. At its highs Brazil was up more than 8%. However, sellers had a different plan in store for this market. Volume ended mixed with volume on the NASDAQ exchange higher than Friday’s turnover. Today was day three of an attempted rally and it is not a good sign to see distribution show up when the market is trying to confirm a new rally. While the market rolled over there were a few key breakdowns today adding to evidence this market has a long shot to confirm a new rally. Today’s action coupled with some of our new longs not acting well does not give us confidence we have much upside left in this market. Navigate this market with caution as we continue to see red flags.
One of the big stories today was GTAT and its bankruptcy. Many were up in arms Jim Cramer recommended the stock a few weeks back. While it is easy to pile on here you have to remember the guy recommends a lot of stocks. He is bound to miss one and miss one badly. Remember, this happens to the upside as well. Our process if we had been long would have had us out of the stock in early September. Outside of the action earlier in the month the stock has not indicated there was that much trouble ahead. What the stock chart does remind us is it is very important to follow an exit plan to get out prior to a big blow up.
While the fourth quarter tends to have great odds to end favorable it does not guarantee gains. We could very well be in the second leg of a decline beginning after the Federal Reserve meeting. Quantitative Easing from the Fed is ending and while the ECB is about embark on its own liquidity injection it does not guarantee our market is going to go higher. Even if we get a correction of say 10% the market could turn on a dime and end the quarter with gains. At this moment, odds seem low for a rally as we continue to see very thin leadership and breakouts failing.
Small caps continue to disappoint as the Russell 2000 led the market decline. While the Russell 2000 has spent some time under its 50 day moving average by comparison has spent little time under its own 50 day. If we are to rally it would be nice to see small caps pick themselves up and lead this market higher.
An interesting development is the VIX looking mildly bullish. We have lacked fear in this market and it appears it has crept back into the market a bit. Stay tuned.
