Positive economic reports fail to spark a market rally
The first kinks in the armor finally show up as positive GDP and Chicago PMI figures fail to spark buyers pushing the market higher. Traders simply couldn’t find footing after 10am EST and given the quarter end sellers took control sending stocks to the lows of the day. Market leaders took a big hit as well falling further than the market did in heavy trade. But, it was the first day since the September 1st follow-through we had damage done to market leaders. There were a few bright spots on the day, but rather than having market leaders hurt it would have much more positive to see these leaders finish higher on the day with the market marking a distribution day. We aren’t raising red flags just yet, but today did raise our awareness to go into protection mode if this type of action continues.
Certainly the positive GDP number as well as a better than expected Chicago PMI figure is helpful for the economic picture. Many will try to spin these figures to give a reason as to why this market fell today. The bottom line is we suffered decent losses on the market leaders and the NASDAQ notching its second distribution day.
A positive note was the market did not close out on its low of the day. After the market hit its low just have noon time the market did push back into the green, but sellers took the opportunity to dump stocks. How can you blame longs to take profits off the table after MANY leaders have broken out to the upside and producing some fabulous gains. A pullback may offer a chance to reload some market leaders at their ten week moving average. Whatever the case may be, we’ll be ready for whatever comes.
Looking ahead to the last quarter of the year we are going to be keeping a watchful eye on our market leaders as well as if the market will cough up further distribution. Sentiment has been super positive with last week we saw the AAII Bull index showed bulls at 45% above the upper range. Sentiment is a great tool when the market is at new lows or new highs, but within a trend it tends to be a difficult timing tool. Do not use Sentiment surveys as an end all be all in terms of determining trading. Bulls did fall this week to 42.5 it is still elevated and perhaps a few days worth of light volume selling will ease back the bullish sentiment.
Remember to always cut your losses and take some profits as the market rises.
