Tame inflation data and better expected manufacturing day did very little supporting stocks as sellers jumped back into the market. The market did find buyers pushing the market to its highs prior to the noon hour. Volume was non-existent as the volume run rate ran significantly lower than Tuesday’s pace as buyers did not find much company. Running out of steam sellers took over and ran all over bulls for the remainder of the day. We are beginning to see cracks in the market’s armor with a few leaders breaking key support levels. Today was another warning signal being shot across the bow as this market is about to pull back.
Rising rates and the dollar pushing higher are putting pressure on equity prices. Perhaps we are seeing the market pricing in some event we have yet to stumble across, but the action over the past few days does appear to be troubling. Regardless of the reason, price and volume action on the NASDAQ is far from ideal and does not resemble a market undergoing a normal reaction.
For quite some time market sentiment has been quite bullish. Last week the AAII Bulls jumped over 50% and more than likely the bulls are above the 50% market. We have been up at these lofty levels for awhile and it indicates why using sentiment as an indicator can be dangerous. Seeing the current market action and market leaders stumble is our focal point. However, seeing how sentiment continues to be at lofty levels the market is more than likely prime for a correction. Use sentiment as a secondary, tertiary indicator rather than a primary. Focus on your stocks.
BIDU a big time leader crashed through its 50 day moving average after the company cited slower growth in 2011. This stock has been stalwart since the March 2009 lows and it came under pressure today. At the end of June of this year the stock dropped below its 50dma, but it was able to recover from the heavy volume selling. The stock is playing with fire once again and it will be important to see how the stock reacts to the market conditions.
If you have stocks giving you sell signals you must take them. Do not leave a position on the table in “hope” it will return to its former glory. This doesn’t mean if the stock turns the corner you can’t get back on, but at this juncture you need to be able protect your capital. It goes without saying….CUT YOUR LOSSES.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.