Early morning selling was the story of the session after last week’s holiday shortened week. AAPL even appeared to flash crash during the first 30 minutes of the session. It was clear from the start high beta stocks were targets of sellers and they were not going to let up. The Dow was able to skirt major damage, but like the rest of the indexed suffered a day of distribution. Volume was obviously higher across the board with Friday’s shortened session, but was higher than Wednesday’s session. Keep in mind this is the first real day of distribution besides a few stalling days we saw in the NASDAQ a few weeks back. Not the type of day you want to see the market start the month out on, but we will need to see these pile up. Caution flags have appeared and we will adhere to our trading process.
Since the Russell 2000 led the market lower today losing 19 points or 1.63% on the day we thought it would be interesting to take a look inside the index. The 50 highest beta names in the index lost an average 3.06% on the day. Conversely, the 50 lowest beta names in the index only lost .80% on the session. It was pretty clear sellers attacked names with the highest beta and it was not a pretty sight.
The Dow Jones Industrial Average was able to hold up well thanks in large part to three names: CVX, XOM, and MSFT. MSFT continues to act well as the technology giant is trying to right its ship. Chevron and Exxon Mobil are simply rebounding from the beating it has taken as of late. For what it’s worth, both stocks are testing their October lows at the moment and could try to form a bottom. Time will tell and we are not about to try and catch a falling knife.
It will be an interesting week for sentiment as the selling which began near the end of the holiday shortened session continued today. Last week AAII Bulls ended at 52% while Bears limped lower to 20.79%. Will the selling flip the script on sentiment? NAAIM Exposure index went to 86%, but interesting enough the most bearish bet went to full 200%. Many will ask if Hedge Funds rather than chasing performance will try to manufacture it by shorting beta…however, it is far too difficult to know for sure. Our process will continue to win because we are not distracted by butterfly analysis.
There will be a good level of sells for our subscribers tonight. Today’s damage should be felt for a few days. No one knows if this will be a few days, weeks, or months’ worth of selling. They key is stick to what the price action is telling us. Otherwise you will end up guessing and missing out on potential gains or letting a loss get too big. We look forward to seeing what December has in store for us.
