The wave effect was in high gear as a global sell-off in stocks began in Japan and finished in the United States. A disappointing GDP report, showing Japan is out of a recession sent traders to sell off stocks. At 4pm EDT the selling finally ceased leaving the remaining bulls licking their fresh wounds. Chinese ADRs took the brunt of the selling which was fueled by a nasty decline in Chinese A shares. There was very little support for stocks as buyers weren’t willing to step in and offer support. Even though the S&P 500 flashed its 5th distribution day, the action in leading stocks (especially Chinese ADRs) is what sent the market into correction mode.
Volume wasn’t overwhelming on either the NASDAQ or NYSE composite suggesting institutions weren’t out in full force. It was mainly the nasty price action that sent stocks overboard. We have to keep in mind the NASDAQ did run more than 200 pts from the July 13th follow-through day and we did see some stalling action on the NASDAQ suggesting the path of least resistance would be down. Check out the following chart to see the NASDAQ stall.
Now handling a day like today will be important and how you react to your individual holdings. One thing to keep in mind is your cut loss area and never to violate this strategy. It will save you from losing your stake. Trimming holdings; raising cash is a wise action to take as this type of selling can create panic and further selling. Selling can continue and today we saw buyers completely stand aside as stocks were continued to be sold.
Not all leaders were taken out and even a few did find support, but overall the action isn’t pretty for leading stocks. Healthcare was the only bright spot in today’s market. Having the Obamacare Public Option being dropped it helped the private insurers find support. Another area that received support was Pharma and Medical Information companies, but with the overall market in correction we will need to see a follow-through for me to begin to add back stocks. Healthcare should remain a sector that should be watched as it may help us lead out of this recession. Hopefully, the USA finds a way to revamp the slumping manufacturing complex to help support a recovering economy.
Speaking of manufacturing an ecomonic indicator that went unnoticed was the Empire Manufacturing index showed a big jump to a reading of 12.08. The street was expecting little growth at 2.2, but the big reading was certainly a positive sign that maybe, just maybe the United States manufacturing complex might be TRYING to make a comeback. Manufacturing goods for Americans and abroad keeps many people employed and offers a wide range of job opportunities. The Philadelphia Fed index is set to be released later this week, we’ll see if we can get another positive reading.
The search for Day 1 of an attempted rally has begun, remember to keep losses small and stay positive.
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