The story ending the day Friday was the surge in price action at the close, especially with volume surging. On the flip side, today’s close was on lower volume than Friday, but the collapse in prices highlights the lack of bids supporting the market. During the morning hours the market got a bit of good news out of the housing market, but again the fears swirling around the Europeans and their debt issues. Again, the end of the day action simply highlights the lack of strength existing in the market. Our correction continues, even with the possibility of a low volume bounce over the next few days.
Volatility spiked in the morning and worked its way lower throughout the day as stocks wound their way through the day. The late day slide had the index off its lows, but still wasn’t able to capture the low put in on Friday. There is a decent possibility that we gap lower due to the overwhelming pressure on prices (lack of bids) we saw at the end of the day. In addition, the inability for the VIX index to move higher gives a greater possibility the gap down tomorrow will be bought. It would be ideal if the market would be able to climb higher over the next few days or week to setup better short patterns. The better the setup, the better probability of our short patterns working.
There are is too much weakness here for us to be considering buying any stocks here. While the temptation of buying a stock “on sale” is far too dangerous of a strategy. Remember, a historical precedence as been set with prior corrections below the 200dma it is highly likely we’ll have a few months worth of a correction. Typically during a correction the market will find itself having two or three waves lower. At this point, the flash crash did not set the first wave lower, last Thursday was the first wave lower. While it would be normal for the market to work its way higher on low volume, the amount of weakness we have seen it wouldn’t surprise me to see the market to continue its way lower without a rally.
The bottom line here is to remain patient and wait for proper setups prior to entering the market. Our market is in a correction and getting long is very dangerous and should be avoided. Do not forget, cash is a perfectly good position to be in at the moment and waiting for the market to confirm a new rally is a prudent decision. Get the trend in your favor!
Enjoy!
