The headline of the day was the nasty reversal stocks put in after the Federal Reserve released its statement at 215pmEDT.  From the start stocks were mostly flat and volume ran mostly lower.  The initial reaction to the announcement was positive and volume started to come into the market.  However, it didn’t last long as sellers rushed in and slammed the market.  Volume rose as sellers pressed on and pushing stocks near session lows by the close.  It was a distribution day all around and a heavy distribution day.  Today was not a great day for stocks, but we do not have the amount of distribution nor do we have leading stocks breaking down.

Today shows this market was a bit extended and a pullback shouldn’t have come as a surprise.  Although we are taking it stock by stock today we saw the number of stocks over their 20dma was over 85%.  From a market perspective we are more than likely going to see stocks pull back a bit further.  They key will always be leading stocks and the major indexes.  If we begin to see more leading stocks breakdown and more heavy distribution I would begin to get nervous this market was about to cave in.  However, if leading stocks continue to outperform the market without major blemishes and heavy distribution is avoided there is no reason to believe this rally is over.

For a nasty day of distribution the number of new lows hitting the NYSE and NASDAQ was only 6 stocks.  They were:  ASFN, BUSE, CPC, EM, FFNW, and RXII.  Taking a closer look these stocks are thinly traded and already in severe downtrends.  A lesson here is never try to buy a falling “knife” or 52 week lows.  Stocks tend to hit more 52 weeks lows and is a sign of weakness and it takes a bit of time for a stock to put in a bottom.  Regardless, we didn’t see an uptick in new lows that would “alarm” us here.

I’ve pointed out in the past the percentage of stocks over their respective moving average.  It is more relevant for short term swings for to use the % over the 20dma.  I perceive the more stocks over their 200dma a bullish indicator rather than bearish.  As we move along and you will see the junk-off-the bottom stocks begin to fade away, thus reducing the amount of stocks over any moving average.  At this point we had such a nasty bear market these percentages remained skewed.  Keeping in mind the number of stocks over their 20dma is far more interesting factor to keep an eye on.  I use these to be on “alert” rather than trade off as they aren’t reliable timing the market.  Much like overbought and oversold indicators the percentage of stocks over a certain moving average is simply secondary to price and volume action.

Markets do not move in straight lines and are subject to pull backs.  It is more important to take it stock by stock rather than what the market is doing.  There were plenty of leading stocks that held up quite well today.  We could simply see some base building, possibly handles forming in some names.  At this point it is a bit to early to tell, but if a stock is acting well take profits while keeping a core position on.  As always you must cut your losing stocks to avoid trouble on down the road.