Not so good news out of the housing sector left a sour taste in traders’ mouths as housing starts sank 10% last month. Producer prices fell, but the housing numbers were a drag at the open as the market gapped lower. From the start we saw the market push higher for the first half hour only to see a reversal take place. However, as the S&P 500 approached its 200dma buyers stepped up and defended the moving average a positive development. As the market worked its way through the day volume was lower across the board. This was a good day for the market, a day of rest with volume working its way lower.
Today’s action was something I was looking for the market to do. Distribution would have almost been the straw that broke this market’s back. Any distribution within the next few days will be a major black eye for this confirmed rally. To see the market pause on light volume was a positive sign. Warning signs outside of distribution will be stalling days where the market reverses on big volume. Any high volume reversals will be just like a distribution day and viewed in a negative light. Be on the look out for these signals to gauge the health of this market.
Just as important we’ll need to continue to see the leaders continue their domination of the market. Any weakness, like distribution and negative reversals will signal market weakness. While this may be a few days, weeks, or months away it’ll be important to continue to follow the leaders as they will give us clues as to how this market is going to react.
Certainly the action over the next few days will be most interesting as we have quadruple witching on Friday. Options expiry often leads to volatile markets leading up to the Friday of expiry. Monday we did see a negative reversal only to have the NASDAQ confirm a new uptrend. However, today the market tightened up and traded flat on light volume. It would be nice to see the market be able to show some solid accumulation, but able to consolidate gains on lower volume. The better the accumulation the better chance we get at the market to continue its march higher.
If you choose to go long make sure you are cutting your losses. Cutting losses is your insurance policy and not doing so can leave you and your capital in a lot of trouble.
