Despite gains from Alphabet (GOOGL) the market could not hold off sellers as crude oil sunk more than 5% on the session. Bonds rallied on the day with the 10 year yield move below 1.9%. Why this is occurring is anyone’s best guess, but we are not about to argue with price action here. We remain on very shaky ground. Friday’s follow-through happened due to end-of-the-month rebalancing volume. Today we are reminded this market still remains in limbo and while we are under a confirmed rally caution must be exercised. Controlling position size and exits is paramount in this market. Even with GOOGL this market could not avoid sellers.
Today marks a distribution day for this new uptrend. Last week, IBD used their rules to mark the market in a confirmed rally. The following day the market underwent a big distribution day. Typically, when a distribution day occurs just after a follow-through day the rally is all but doomed. Of course, Friday’s action happened and we were able to by our rules confirm a new market rally. Fast forward to right now and what we have is a very difficult market to have any conviction. Cash remains king and any new longs remain on shaky ground. Stick to the system and always adhere to your trading rules. Never miss an exit signal.
Perhaps something that has the market spooked is the FOMC will not step in if the stock market falls further. There is a sense from traders the Fed put remains. If we take a look at an article from Business Insider perhaps the put no longer exists:
That’s the case in the Fed’s middle scenario, the merely “adverse” scenario. Short-term rates will “remain near zero” it says – approximately where they’re right now. So no negative interest rates. And no QE either. Stocks can go to heck, the Fed is saying. It’s worried about credits, particularly high-grade credits. Junk bonds and stocks are on their own.
No one knows if push comes to shove if the Fed would simply sit on its hands here, but give the above quote it is not likely in a panic they would step in.
FB finally had its first blemish since reporting earnings last week. The stock was rallying once again hitting another all-time high. Trouble started just after 11:30am EST where sellers began to take control of the stock. Volume was higher than yesterday and above average. However, it was still lower than the day after earnings. At this point, we would love to see a consolidation period for the stock before it moves back into new high territory.
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Is there a stock market crash on the horizon? It is anyone’s guess, but be prepared for anything this market can throw at us.
