A positive GDP report didn’t stop sellers from hammering stocks from the opening bell. During the selling volume actually decreased showing the selling was weakening. In addition, the market was able to creap into an extreme oversold reading on the McClellan Oscilator. More importantly volume was unable to pick up during the selling signalling big institutions were not behind the morning’s selling. After 10:30amEDT stocks found solid footing and were able to slowly climb higher. Today’s market certainly flashed signs of resiliency as stocks were able to recover from the devastating blow sellers gave the market. By the end of the day stocks were able to squeak out gains on higher volume as the buying action from the bottom showed accumulation. Never fight the current, in this case the market remains in an uptrend there is no sense in fighting it.
This morning’s trade certainly felt like weak holders were being shaken out of their positions. My clue was volume coupled with the price action, if volume was soaring and was on pace to break its 50dma I would have been nervous. However, as prices continued to decline so did volume ultimately suggesting it was more than likely shorts trying to pound the market into submission. Without an uptick rule shorts can unleash a tremendous about of selling pressure on any stock with borrow. They certainly underestimated the buying power that continues to scoop up shares as the market continues lower.
The damage, aside from price destruction the 2008-2009 bear market has done to many people on Wall Street is quite amazing. It appears “context” has completely been forgotten about or certainly hasn’t been looked at. This most recent bear was the 4th worse on record with 1929-1933 being the absolute worse. With this being said, we aren’t going to have a “normal” market cycle for quite some time. We simply need to let time heal all wounds and bring back a bit of context about this market. What the federal reserve bank of the UNITED STATES of America did was they injected a massive amount of liquidity back into failing institutions. Thus, creating a dislocation in the natural order of the market and FAR AWAY from Free Market principles. Intervening in the capital markets can be debated for centuries, but it happened and the ramifications of these actions are now being played out in the market. The market is simply repricing the coming economic situation rather than depression like economy. Therefore, we will play the market as such and leave the debate to those who are much smarter than we are.
Today proved to me once again the market has an underlying bid and to trade against that will only lead to losses down the road. Continue to cut your losses short, keep a positive attitude, and surround yourself with positive influences.
