Coming off a light holiday session Thursday stocks were hit by sellers early on and often. ISM non-manufacturing survey showed a better than expected number, but the index showed the service sector shrinking. Sellers took full advantage and continued to hammer stocks to their lows. Once again, buyers stepped in and pushed the S&P 500 and Dow higher as the Dow avoided its 6th day of distribution. Sadly, the NASDAQ was not saved by the late day action as it finished notching its 5th day of distribution. This market is doing its best to confuse traders and is nearing the point where the current uptrend is in jeopardy.
The NASDAQ Composite index notched its 5th day of distribution is somewhat concerning. Any time an index, especially the leading index off the lows. Taking a look at the days of distribution you’ll notice these days aren’t major bouts of distribution, but rather on the lighter side. Like Monday’s action you’ll notice the tails seen on the days of distribution. Growing a tail indicates the price action is being support at the lows. This is usually is a sign of bullishness. We should also note that Monday’s distribution comes off the heals of a holiday light session. At this point, I continue to be patient and see how the indexes and leading stocks act here.
Speaking of leadership there are plenty of tails that were seen in the big stock leadership. Volume was mixed, but positive overall. I can not say we have great stock leadership as a few of these stocks have produced loose price patterns along with shaky volume. This isn’t the perfect scenario to produce the next monster stock. Could we find ourselves holding a monster stock a few weeks from now? Most definitely we could be but the market is doing it’s best to preserve the monster stocks for now. Fortunately for Big Wave Trading we are keeping the waters a bit more clear than the vast majority.
Crude oil took a nose dive as oil traders begin to question the global rebound and its validity. We must also recognized just nearly a year ago Crude oil stood at nearing $150 a barrell. The $64 and change it settled today is a far cry from what it was. Although the Oil Service sector saw support at its 200dma the commodity looks to be feeling out a new range to trade between.
It appears we’ll continue to operate in a low volume environment for the summer months. This isn’t a total surpsrise to see volume below the 50dma. After all it is summer, but at some point it’d be nice for stocks to begin to see the liquidity come back into the market. No need to flood stocks with liquidity just enough to show signs of life. The less liquid the stock, the better chance you’ll see the stock be whipsawed. It will be interesting to see if liquidity continues to avoid the stocks market
As always, cutting your losses sooner rather than later always keeps your downside risk limited. Without doing so, you’ll end up without capital to trade with.
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