Alcoa’s earnings disappoint coupled with Obama’s plan of new banking fees helps fuel fears amongst Wall Street. Option Volitility soared as the fear trade crept back into the market. Selling intensified as stocks were finding new lows throughout the session. However, stocks did see a bit of a lift into the close. Buyers simply stayed away as the market notched its first major day of distribution in quite sometime. The uptrend took a big blow today, but it is not over just yet.
While today may seem like a terrible day, it was in the grand scheme of this uptrend it is only one day of distribution. Normally, 5 or 6 distribution days along with a few days of stalling is more than enough to kick off a correction. This market is far from being a normal one as we’ve seen more than 6 distribution days fail to bring this market into a correction. At some point a correction will take place it may be soon or another month we simply do not know. We have the ability to cut our losses, trim winners, and stay disciplined in this market.
The McClellan Oscillator was cleared of any overbought condition as well as the relative strength index of this market. Now, this certainly doesn’t mean we are going to correct 10% here, but it does suggest we might have some downside left. At this point it is a guessing game what will happen tomorrow or the next day. We do know the sun will rise in the east and set in the west. Know your risks and keep with the number one rule of speculation; do no harm.
VIX displayed some interesting action today. Monday we saw the volitility index gap lower only to see it rise throughout the day. Today the index gapped higher and ran throughout much of the day. By the days end though the index gave up most of its gains and only closing four percent higher. This may seem like a big percentage move, given the fact the high was 19.46 and it closed at 18.25 says sellers got complacent. While we may end up lower by tomorrow morning, the complacency of sellers may indicate support for the market is right around the corner.
Using all of this knowledge to our advantage the most important thing we must do is listen to our stocks. We have quite a few stocks with excellent growth in fundamentals as well as a good story. But, just as important are their charts. At Big Wave Trading we stressed the need to be able to read a stock chart much like an orthopedic surgeon reading a MRI or X-Ray. Reading a chart will allow you to understand the finer points of buying and selling at proper points to maximize your portfolio’s value. Take your ques from your stocks and the stocks you find in your scans as we are doing the same.
Until tomorrow.
