Tuesday was a big time distribution day for the NASDAQ despite the index closing above its mid-point of the session. Thanks to GOOGL the index closed down 81 basis points as volume swelled over Monday’s level. The Dow and S&P 500 were able to sneak out gains and while positive it does leave the market vulnerable to quick, nasty sell-offs. A risk of a quick sell-off is creeping higher despite the gains we have seen over the last 4 months. Fifteen times since 1950 has the market closed higher in each of the first 4 months. Twelve times the market has finished higher with average gains of 13.5%. Odds are we continue to push higher through year-end, but that does not mean we are immune to a sell-off. Position sizing and exits are going to be very important as we approach the weakest 6 month period of the year. Stay prudent and maintain a high level of discipline with the market we have anything is possible.
While GOOGL sold off after disappointing the market with its earnings report AAPL pleased the market after the bell. This morning the stock is set to open 5% higher from Tuesday’s close. This should help lift the NASDAQ, but it will be interesting to see how volume comes in when compared with yesterday’s pace. This week in particular is a big week for earnings. We cannot stress enough to make sure you know when your stocks report. GOOGL wiped out a month’s worth of gains in a day. While it did hold the 50-day moving average locking in gains prior to the report would have saved you nearly 10%. We do not want to have that type of hit.
We are still waiting for IWM to breakout from its long consolidation period. The lack of support behind small caps is giving us a pause. Typically known for a “risk-on” trade traders and investors alike are trying to hide out in large cap technology stocks. We’d love for this to change, but know we cannot force the market to do what we want. We are merely passengers and must follow its lead. If the group can breakout it would certainly be a great sign for the overall market. We would love to see small caps regain their former glory setting new all-time highs. Until then, we will continue to operate as we do and follow the market leadership. Anything else would be sub-optimal.
We hope you have started the week out on a positive note. Good luck the rest of the way.
