Housing starts and building permits fell unexpectedly sending jitters throughout the market. The major indexes at their lows were down more than one percent. Even positive news from Texas Instruments, Apple, Dupont, and Catepillar couldn’t help suck in buyers. Volume was up across the board and came in just about average. It wasn’t terrible selling, but a true distribution day. Leaders were down, but many of our leaders were down on lighter volume. We did see a few stocks breakdown below support levels, but not at an alarming rate. One silver lining on the day was the indexes ability not to undercut yesterday lows. All told, today should give us pause and at least raise cash moving away from weakening stocks.
Looking at the number of distribution days we have to take a look at when those days occured. The NASDAQ has 4 days worth of distribution while the S&P 500 has 7. Seven may appear to be catasrophic for this market, but two of these distribution days came after holidays and two were on options expiry. Last Friday we saw the majority of the volume come in at the morning and volume die off as we progressed throughout the day. Remember, this goes both ways where volume could skew accumulation just like it skews distribution. At some point, this market will need to see real volume accumulation. I am begin a bit sarcastic, but at some point this market will either pull back sharply or head higher. It is up to us to make sure we are taking the signals from our stocks.
Things aren’t that bad with positive earnings coming out from companies. It may or may not be enough, but what is interesting is we aren’t seeing a tremendous amount of new lows being made in the market. Fourteen new lows, 14 new lows were hit today on the NYSE and NASDAQ while 446 hit new highs. We can’t say the market is THAT weak, but on the flip side only 64% of stocks are above their 20dma. This shows it isn’t a collective move by all stocks, but perhaps a smaller group of stocks making the move.
Leading stocks were able to outperform the major market averages a very good sign to see. Within the index there weren’t any alarming signs of major breakdowns or big severe warning signs. There are certainly caution flags being raised here with this markets inability to build on gains and upside volume.
This really spells out you must go stock by stock and protect yourself from severe losses.
