Stocks reversed hard as the NASDAQ is weighed down by Cisco’s cautious outlook. The NASDAQ saw sellers knock down the index below its 50dma a sign of caution. Volatility rose across the board as last week’s disaster remains on every trader’s mind. We were able to avoid complete disaster as the NASDAQ did not put in an outside reversal day. Over on the Russell 2000 index, it was able to hold its 50dma and outperform the entire market. Not a good day for the market as the price action suggests we aren’t out of the woods for this correction.
The market remains in correction mode as we failed to confirm the most recent rally beginning on Monday. Volume did rise on the day at the NASDAQ, but the index can thank Cisco as it accounted for 3.3 the change in volume on the NASDAQ. Massive volume came into Cisco as the company issued soft guidance for second quarter earnings. Traders did not like the soft guidance and hit the stock hard. However, other leaders did not escape the wrath of sellers.
Baidu saw new all-time highs only to reverse hard on higher volume. The stock broke out as the stock underwent a ten for one split. Baidu just came out of a late stage base and is in desperate need of a base, but for now it appears the stock wants to find itself lower. Chilpolte Mexican Grill is another leader that found itself reversing hard on volume. And not to be out-done Salesforce.com reversed hard with volume as well. All these stocks are still above their key support levels during this market correction, but today’s action serves as a warning sign.
Even though Cisco accounted for the volume increase the price action alone suggests we are going lower from here. There are still some positives as last weeks 14% decline helped shake things up. Normally, a correction of that magnitude resets base counts. But, a one week 14% correction hardly counts as a base reset. We certainly need time to work out last week’s fat-fingered glitch. Anything is possible at this point, but taking a defensive stance is warranted.
Another secondary indication we may need to see the market go lower is the AAII bull and bear survey. The survey showed both Bulls and Bears at 36.6%. One would have thought the survey would have shown bulls dropping below 30 and bears well above 40%. Monday’s rally certainly helped out the bull case, but it’ll take a bit more downside pressure to kick the bears in the pants.
Stick to your defense and enjoy your weekend!
