The NASDAQ suffers back to back distribution days leaving the current rally under some heat

Markets whipsaw investors as fears over a market top set in, but afternoon trading saves the session.  After Wednesday’s atrocious action sellers were quick to jump out of stocks all morning long.  Volatility shot through the roof as investors were looking to run for the hills fearing a top may be in the market.  Volume soared along with volatility, but by 2 pm the selling began to give way to buyers.  Options expiry week is always filled with quick whipsaw moves and this week has been no exception to the rule.  By the end of the day the NASDAQ was able to find support at its 20 day moving average and close above its mid-point of the session.  Unfortunately, leading stocks did not fare as well as the rest of the market.

The S&P 500 and Dow Jones Industrial Average have been holding up relatively well.  Considering the Russell 2000 index was down well over 1% again today the large cap indexes are showing a bit of outperformance.  One problem, when the leading indexes such as the NASDAQ and Russell 2000 suffer serious blows and diverge from the S&P 500 and Dow there are very dark storm clouds approaching.

Bullish sentiment continues with the AAII Bulls registered at 50%, while bears crept up to 29%.  It has been weeks since we have seen the number of Bulls fall below the 50% mark and the bears above 30.  November’s slight correction could not deter the bulls and we continue to see them dominate here.  Given the duration of bullishness at lofty levels it would not come as a surprise to see the market slosh around at the current levels before a break to either side.  It boils down to price and volume action and thus far our market leaders are showing plenty of cracks.

Google (GOOG) reported excellent numbers after-hours blowing away estimates.  The stock rebounded after the announcement, much like AAPL did after its earnings.  I am not suggesting GOOG will pull an AAPL by giving back all its gains in a day, but it is interesting GOOG will gap higher into Multi-Year highs.  But, given the pressure the market is under will the stock be able to hold up?

We certainly do not want to be buying here; we have been witnessing a few failed breakout attempts and failed bounces off 50 day moving averages.  If this weren’t the case, the recent action could be construed as “normal.”  However, this doesn’t appear to be normal action.  Capital preservation at this stage in this most recent bull market is a prudent move.

Enjoy the weekend!