An ugly day for small cap stocks as energy was down once again weighing on the S&P 500. Volume was higher on the session. The biggest story of the day was certainly the drama going on with VRX. Our focus continues to be on the lack of leadership and now is even narrower than we had just yesterday. Large banks look very suspect and appear to be headed lower. Tomorrow we’ll get earnings out of MSFT, AMZN, and GOOGL. Next week we have the Federal Reserve meeting and given we are hitting the stride in terms of earnings there will not be a dull moment in this market. This market is teetering on a pullback and controlling risk here is paramount. Position sizes and exits are extremely important. They very well could make or break your year. Be prudent and stay vigilant with this market.
VRX had been setting up in a bearish pattern. Given the nature of this market shorts are extremely risky, but with hindsight our chat room was on this short. At the very least grabbing a few puts would have been a nice addition today. We can’t look in the rear view mirror. Our concern is what is in front of us and managing risk is an important point of focus for us.
Another blemish today was small cap stocks. The Russell 2000 closing below its 50 day moving average is certainly a concern. IWM volume on the day was higher than yesterday, but below its 50 day volume average. This market will have a hard time rallying without small caps.
Banks continue to be a sore spot for this market. BAC, GS, JPM, and MS all have issues with their charts. They are not indicating higher prices are around the corner. Odds are not in our favor to see this group move higher any time soon. Rather, continue to put pressure on the overall market.
The real laggards in the S&P 500 were Energy, Materials, and Health Care. While the issues with biotech are clear it was actually health care equipment and services providing the largest drag. Drilling a bit further it was health care facilities and managed healthcare names having the most trouble.
The rally off the lows has been nice, but without proper leadership and increasing number of cracks in the armor. This market is likely to head lower over the course of the next few weeks. Maybe earnings and the Federal Reserve will spark some buying, but at the moment we do not appear as if this market can push higher. Stick with the game plan by controlling risk and executing. Trying to guess where the market is headed will only lead to trouble. Be vigilant and cut your losses quick.
