In a surprise to the market data out of ISM showed the manufacturing sector contracted waking up sellers pushing the market lower. The market gapped to the upside with the hope the economy wasn't in that bad of shape with Europe and China's PMI data. At the open the NASDAQ hit the high of the day and was never able to recover. SPY and DIA staged an outside reversal day while IWM and QQQs were able to avoid the pattern. Volume was lower on the day compared to Friday's massive volume surge from end of the month rebalancing. While today wasn't an official day of distribution it was certainly a big warning sign to longs buying has been exhausted. We still have not seen a true follow-through day and it appears after today we may not see one. Tread carefully as today was not a good day for the market if it wants to push higher.
The outside reversal gets negated if the market is able to retake today's high. Volume doesn't matter too much, but we'll need to see the highs taken out if this market has any chance of moving higher. The other game changer was the reversals at major moving averages. For example the NASDAQ gapped above its 50 day moving average only to cut right back under it. This is not the type of price movement you want to see from the market whatsoever.
To make matters worse for this rally off the November lows is market leadership. Two stocks DDD SSYS broke out last week and were looking good until the last few trading sessions. The reversals are a clear indication breakouts are failing and a big clue to the health of this uptrend. CVLT is hanging in there and with QIHU breaking out it will be important to watch how these stocks act over the next few trading sessions. Given the market conditions it is very difficult to hang onto these stocks for big wins. Remember, have an exit plan for any trades you make and do not get caught without one.
Not a good start for the bulls this week. It is best to review your trading plan and execute!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.