Weak economic data kicked started the day with Housing Starts dropped more than expected in the month of April. Sellers rushed to dump stocks after the 10 o’clock hour was underway sending stocks to their lows. However, this push was sent the market well into oversold territory setting up a late afternoon recovery. Leadership continues to look very unstable and the selling over the past week will take time to repair. This market remains in correction mode and two to three day bounces are to be expected from this market. When the market becomes too obvious it is wise to be a contrarian.
We did see a few leaders find support at key levels, but there weren’t enough to get excited over today’s move. Technically speaking today is Day one of an attempted stock market rally. Due to the green close, albeit 3 basis points higher we can say this market is going to attempt to rally here. We are in the camp we are going to see bounces short-lived, but anything is possible and we’ll respect the market here. However, all signs continue to point to this market rolling over and making it a fun-filled summer.
Sell in May and Go Away continues to ring true here. The NASDAQ 100 provided support for the NASDAQ and financials helped ease the blow. However, I wouldn’t hang my hat on Financials as these stocks continue to look terrible. Today’s rally in financials came off oversold conditions. Perhaps we see a rally in the financials over the next few days, but these stocks have yet to prove they are a force to be reckoned with.
Despite our bearish views on the market it does not mean we aren’t going to keep our eye on potential long setups. We have seen before this market reverse and move higher. If this market does confirm a new market rally, we’ll have a set of leadership stocks ready to take advantage of a potential move higher. Of course, this does NOT mean we simply buy our “ready list.” We want to make sure we have proper buy points rather than blindly buying stocks. Successful stock market trading depends on discipline and a planned approach. Simply “winging” it will only lead to mistakes!
Stay prudent and cut your losses!
