Selling pressure continued on the NASDAQ for the fourth straight day. Institutions were busy in the NYSE selling down commodity related names including crude oil related names. Oil and gas names suffered the worse fate falling more than 2.9% followed by technology stocks on the NYSE. Financials were another area of weakness, but it was oil and gas names weighing down the market. The lackluster market action over the past week and the lack of ability for this market to push higher at the days end highlights the entire weakness of this rally. We’ll need to see this market turn around and show some accumulation.
There are a few big names holding up, but will it be enough. We can sit here and debate the merits of the economy and where it should be going, but it really is a fruitless adventure. It certainly appears the market is looking for the Federal Reserve to bail it out with round 3 of quantitative easing. Perhaps we’ll get it, perhaps we won’t, but the market is on shaky ground here. The prudent trader will certainly have an eye on the exit, cutting your losses short.
The leading industries have been those who signal an end to bull market runs. Metal stocks, gold and silver stocks are leading the market and when they are the leading stocks historically have signalled a stock market top. Right now, we are seeing this same exit scenario play out in the market with these stocks leading. Perhaps the market is foreshadowing a possible end to quantative easing cycle with the Fed no longer providing the market with easy money. In the end, it boils down to the money management skills.
Saving the best for last…the NASDAQ dropped below its 50 day moving average. Odds are you have a greater probability of profitable long trades when the NASDAQ is above its 50 day moving average. While a day or two below the moving average is not out of the ordinary for this bull market it should be a yellow caution flag. We’ll need to see the NASDAQ jump above this moving average over the next few trading days with positive volume to signal a potential shift in the tide for this market. With that said; we do have plenty of headwinds for this market and given the recent action it is best to err on the side of caution.
