A big gap move this morning was followed by the market shaking off a disappointing ISM non-manufacturing reading. Volume was running slightly higher than Friday’s pre-holiday trading levels. The price action was certainly positive in the morning and although volume wasn’t running much higher it was still heading a positive direction. As the day wore on it appeared the bulls were getting tired and by lunch time prices had fallen below opening levels. Volume increased as the selling picked up signaling a bear trap was at hand. Major indexes were able to finish off their lows with a late day saving rally, but the reversal did plenty of damage.
Many were expecting an oversold bounce, including me as we were in deep oversold conditions. Anything is possible, but it appeared logical the market would try to rally back into the neckline. We did see that rally today and as we approached the neckline sellers took to the market. The neckline is now resistance and major resistance at that. It is quite possible we don’t see the neckline for quite some time as the market is simply unable to sustain any rally, even a little one. Today was a perfect day to be able to hold a very little rally, coming off a holiday weekend. Why not, July fourth is a time to reflect on our great country. This, unfortunately did not pan out for the bulls and lower prices continue to be the likely course of action for this market.
There are a few good reasons to be bullish, after all price to earnings ratios are below long term averages. Many on the street will hammer the good news out of the jobs reports, or any report and point to the valuations saying stocks are cheap. The only issue is when demand isn’t there to meet the supply of stocks prices will fall to where buyers are willing to outpace supply.
Once again index puts were the rage amongst option traders. Equity put/call ratios still remain in the complacent area, but index puts are a different story. Index puts are primarily used to hedge large institution’s portfolios and the amount of index puts being purchased indicates the big boys are uneasy. If you haven’t noticed the heavy volume selling since April’s high the index puts should give you the indication the big boys continue to sell into this market. Until these reverses course it is buyer beware.
This is a great time to be in cash and taking a vacation. Unless we get accumulation the market is more than likely to fall to where bids come back in the market.
Disclosure: No Positions