From the onset it appeared as if we were going to see another strong day for the markets. Unfortunately, as the afternoon wore on sellers had the upper hand. SPY closed higher by .46%, but well off its high of the session. IWM suffered the same fate while QQQ was able to fight off the sellers better than most. Volume was mixed with NYSE volume coming higher than Friday’s session as NASDAQ volume fell. While gains were nice to see how we got them was not. Not an outright bearish day and we did avoid a day of distribution. A positive for the health of this market rally. We continue to find stocks hitting buy points and will continue to work this market extracting gains from this market. We are not completely out of the woods just yet, but the odds favor this rally continuing.
A bright side certainly is the number of stocks we continue to see hitting proper buy points. It is very important for the health of the market to see a plethora of stocks hitting new buy points and acting healthy. NYSE Adv/Dec line as well as New Highs were very healthy last Friday and continue to lead the market. These indicators are simply showing the strength of the market rather than imminent danger. Too many people think this economy is going to crash and burn taking the stock market down with it. Heck, they may be right at some point. However, price pays, and we would prefer to focus on what matters most.
Today is another day we need to be mindful of a distribution day. While we have a lot of positives for the market rally to continue, we must be aware there is a downside. If we were to see a distribution day during Tuesday’s session would be a devastating blow. A distribution day two days after a follow-through day the market saw the confirmed rally fail 70% of the time. Not a guarantee, but odds would favor a failure if we were to see a distribution day. This is precisely why we have an exit strategy and proper position sizing. A sound risk management strategy limits your downside while maximizing your upside. A tremendous key to our success has been the ability to stop large losses piling up and riding our winners. Not a secret formula by any stretch, but one most find too difficult to follow.
Futures currently are pointing to another higher open for Tuesday’s session. We wish you luck with your trading today!
