Overall Friday’s stock market session has to be considered as a poor but not terrible session, as leading market averages closed mixed. The RUT and COMPQ led the way ending higher on the session with the DJIA and SPX finishing lower. Volume was slightly higher than the day before but still well below average. The session had the feeling of churning behind it, considering the reversal from the early morning gap up and the higher volume than the session before. This is the type of action that is normal in a range bound market.

This week has been a weird one indeed as stocks continue to melt higher on low volume and short-covering far longer than shorts can stay solvent. However, we are near some key resistance levels and unless we see some volume come into the market on the upside I have a feeling it is going to be very difficult to go much higher here. In a post-QE world, however, it will not be surprising to see a further advancement of the market under low overall volume. That being said, the market is at a key inflection point here and how stocks act here will tell me a lot about rather we will stay range bound or actually build any momentum to go anywhere.

The only catalyst currently for the bulls is the still extremely poor overall market sentiment. This is not enough to sustain a long-term uptrend on its own. However, until the crowd flips back to bullish any time soon this negative psychology can continue to push stocks higher. On the other side is the catalyst for the bears. There are a lot of them. The two biggest being the recent resistance levels we are now at and the other being that the two top leading sectors of this current uptrend got rocked on Friday.

Utility and Gold stocks got hit pretty hard with GG and AWK being the two best (worst) examples of the bloodletting that happened on Friday. Considering these sectors have just taken the lead and considering that they are under such distribution with violent price moves so soon is indicative of a very unhealthy market. On top of that, there were no other industry groups on Friday that took a clear lead with leading stocks in the leading sector clearly standing out. If they are selling the Utes and Gold stocks and not rotating into the innovative and technology related names, I am not sure how this rally continues higher on its own volition without some new leadership. It is also always possible Friday is a one day event and that everything will be back to normal next week.

Unfortunately, this is the market we have to deal with. Before 2008 I was a cocky bastard. I would be almost fully certain of my analysis when it came to technically deconstructing a stock market. In this new market environment, everything is completely different. Setups that used to fulfill themselves almost all the time now rarely ever do. The reversals of reversal patterns are too numerous to count and market volatility and illiquidity has never been worse making for some extreme action on the downside when stocks do decide to sell off. This is why we will continue to operate with a heavy level of cash until our models get the appropriate signals to push again.

Our models are still under an across the board SELL signal in every index. The SPX and DJIA have a very soft NEUTRAL signal about them in the short-term but the overall models remain under SELL signals. This is despite the market currently being under a Follow-Through Day and rally attempt. The leadership is weak/wrong and the accumulation is completely absent in the overall market. As long as this pattern remains, we are going to continue to hold an extremely high level of cash and only take very small long positions in signals that do generate on an EOD trend following basis. For now, my focus continues to be on supernovas in stocks like MNOV and early morning earning winners/spikers that are up pre market on large volume like ALRM.

This too shall pass everyone. For now, I am raising my stops across the board incase this market does decide it wants to reverse. My motto, for now, continues to be the Hippocratic Oath (first do no harm). When we are under a FTD with my models under an across the board BUY signal, my motto will be to swing for the fences in the setups that are CANSLIM/Perfect Speculator quality. As of right now, my scans look like garbage and the few stocks setting up and moving are doing so from some pretty questionable consolidation patterns. I know when to swing for the fences. I know when to hit singles. Right now, it is a singles kind of market. For new traders it is a “sit on your hands” market. This is the time to study, read books, and watch video lessons.

Have a great rest of your weekend. I’ll see you in the chat room on Monday. Aloha from Maui where El Nino has made for an epic winter surf season in the Hawaiian islands.

TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE

ANFI long – +60% – 11/19/15
UVXY long – +45% – 12/2/15
AGRO long – +40% – 10/23/15
SWHC long – +30% – 12/4/15