The most important indicator of the day was the nasty selling seen in Leadership stocks. Market leaders are the number one-tell in a market and ignoring them is doing so at your own peril. NASDAQ led the entire market down today closing down 163 basis points with the Russell 2000 index not far behind (down 153basis points). Volume rose across the board indicating institutions were out selling stocks and selling the leaders. A big warning sign going forward. The S&P 500 and Dow Jones Industrial Average were able to hold up, but I wouldn’t hang my hat on these laggard indexes. Red flags and warning sirens are going off from the market, are you going to listen?
Big stock leadership like NFLX, AMZN, BIDU, AAPL are telling a story (there are a few more, but why pile on?). They are, Leadership stocks foreshadowing further selling in this market over the coming months. Remember, the market CAN rally a day or two, but for now this appears to be the beginning of a deeper correction. A bear market could occur here and the likelihood of this occurring appears to be VERY HIGH. Leading stocks ALWAYS tell a story of the market that is to follow and it is up to you whether or not you are going to listen. With that said, we are going to be operating on the short side of the market. However, cash is an acceptable place to be. Waiting the storm out isn’t such a bad idea, but for those who can and are willing to short we have a great opportunity ahead of us.
Sell in May and go away is certainly looking to be the theme this year. While it did not work out the last two years using favorable time frames is this time different? Perhaps, but we haven’t seen this widespread selling for quite some time. It really boils down to: are you able to adapt to this market environment before it is too late?
All these questions and now it is time to act. Inaction, unless you are in cash is the inappropriate action.
Cut laggards, raise cash, and as always CUT YOUR LOSSES.
