Back to back days sellers took full advantage of sleeping bulls and knocked down the market. Financials were the leading group on the downside with banks receiving the biggest blow. Outside of financials the selling appeared to be quite tame and orderly. With that said, volume ran higher on the day and notched a distribution all the way around. Tuesday’s action certainly has reflected the bearish sentiment that is being omitted by recognized market pundits. On the brighter side of things leading stocks did buck the market’s move with a few leaders flexing their muscles. Now we have the NASDAQ and S&P500 flashing 3 distribution days since the 7/13 follow-through and our red flag gets raised a bit higher.
Taking a look at the financials you can see CIT and AIG were a big “drag” on the day. These two stocks are complete junk but combined they traded over 177mln shares today. A closer look at CIT shows the stock actually found support, but the overall decline and volume sealed the deal for the stock. These POS stocks have been driving the market from time to time and today was another one of those days where the volume was so large in CIT it tripped the NYSE indexes into a distribution day. The turbulent waters of the financials are a dangerous game to play, if you want to play the POS stocks. However, there are a couple of financials that have improving fundamental growth. At this time, financials are simply trying to recover from a nasty part of their history and trying NOT to head lower.
The leading index off the lows has been the Russell 2000 Index, an index of small cap names. Today’s price decline did lead decliners but volume was lower on the day. Since the 7/13 follow-through the index has only seen one day’s worth of distribution, yet the NASDAQ and S&P500 have notched 3. The true strength of this most recent move has been with Small Caps a good sign to come from a market where most everyone is bearish. If the index can continue to consolidate the July’s gains it will more than likely continue its march higher.
Whenever the market piles on distribution within a short period of time it can be cause for concern. This past June we even saw the market head into correction mode briefly (1 day). So it wouldn’t surprise me if we repeat similar action of June. It will be very important to see how the stocks that moved nicely in the most recent uptrend react to selling. So far these names are holding up well and showing excellent strength, but the minute they begin to weaken that will be another clue this market may be done for a bit. Either way, I am ready for any action the market may take here: up, down, or flat.
Tomorrow’s FOMC rate decision should spark some action post release, but there have been times where the market does not react. Ideally, if the market pulled back on light volume or notched significant gains on volume would be a positive in my book. Another distribution day with leaders getting hit would be a signal that all is not well with the market. Remember always to cut your losses short!
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