Institutions were certainly out in full force today sending volume above average on the NASDAQ. The real story was at the end of the day when a Senior Federal Reserve Member Hoenig called for the Central Bank to raise rates. This sent traders scrambling to unload positions in a panicked frenzy. Even leaders began to show some weakness until 3:30pm EST when stocks were able to lift off their lows. While today was a distribution day for the NYSE indexes I do not view the NASDAQ as suffering one. It was clear the NASDAQ was able to escape distribution with the index finishing above its mid-point and only finishing down 23 basis points. However, the day highlights if you have weakness in your stocks it is time to either cut your losses or take your profits.
It is quite easy to say “we have put in a top,” but have we? We have plenty of leading stocks continuing to act just fine. There is one former leader that broke through the 50 day moving average, but it isn’t flashing a top signal. With that said, we only have one former leading rolling over and if more continue to follow the lead of the first leader to roll over then it’ll be a warning signal the market is heading for a correction. The 10 day moving average is often looked at as an indication of strength of an uptrend. So far, our leaders and the market continues to hold this key support area and without a number of leaders rolling over this uptrend may still have a little gas left.
One thing to keep in mind is we are coming up on April 15th when tax payers are allowed to make contributions for 2009 to fund IRAs. Now, seasonally we tend to see cash flow into the market we can never be so sure how much money will be funneled into stock mutual funds. Cash could very well find their way into Bond funds, but with the buzz regarding rising interest rates investors may be hesitant putting cash anywhere but a money market fund. Back to seasonality, historically investors tend to put cash into stock funds and funds, due to prospectus most invest a majority portion of cash into stocks. Thus, we get buying action during mid-April. Will it drive this uptrend into new highs, it is anyone’s guess but it is likely we will see cash find its way into the stock market.
One more item to deal with regarding the NASDAQ’s price action and that is we are less than one percent off its 52 week highs. If we continue to see massive volume over the next few days without further price movement it will signal churning and would indicate to us it is time to cut out laggards and take profits.
One day doesn’t make a trend and while we do have distribution piling up today was the first true heavy distribution day across the NYSE indexes it was the first heavy distribution day. We don’t count option expiry as a true distribution day as the volume is a function of option movement rather than true institutional buying and selling. Remember, stock speculation is more of an “art” than science and we must take into account “special situations” like option expiry. Technically with 4 distribution days, remember with options expiry being “suspect” it is ok to be somewhat cautious with your approach to the market.
If we get back to back distribution I will review how we view a market correction. At this point, I don’t want to rush into a discussion about a correction with many of our leading stocks continuing to look healthy.
It is ok to something off the table if you have some profits, but always cut your losses.
