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Debt Worries Plague the Market; Stocks Fall

|Includes: AABA, AAPL, BIDU, BKNG, CSCO, GOOG, MSFT, Microsoft Corporation (MSFT), NFLX

The Euro Zone continues to be plagued by debt woes as many Euro nations cannot come to grips with reality. Therefore, fear of a pending collapse, traders rushed to sell stock. The market did appear to find some footing after 12 pm EST hit rallying to its highs just after three o’clock, but the rally wouldn’t last too long. Sellers once again took the chance to take down the market, but avoided closing at session lows. However, it remains clear we are not out of the woods and lower prices are in store for this market.

Last week we saw some signs of life in the market, but Friday’s action stomped on the idea this market could rally. While there are some pockets of strength the overall market isn’t in the position to rally just yet. In fact, it is most likely the opposite. It feels like the market is going into the 2008 mode where we slush around these levels only to suffer a severe setback in the fall. Seasonality plays a big part here as we are running into unfriendly ground in terms of the calendar for the market. Summer months tend to be low volume muck sessions and likely will not produce a meaningful bottom. August is a month where we could see a potential setup like last year, but being in the 3rd year of a bull market all bets are off. Cash is king and will remain king (unless we get short setups) until we see a proper follow-through day.

Last summer the market corrected just over 3 months and from top to bottom corrected roughly 19%. This was long enough and deep enough to produce a very nice rally from September till a few weeks ago. In the mid to late 90s we saw the market correct more than 20% a few times producing VERY powerful moves. To give some context the NASDAQ would have to correct to 2310 to put in a 20% correction. We can play “where could the NASDAQ end up” game, but it truly is worthless. We know the signs of a market bottom and will be on top of our game when it does occur. For now, cash is king and your stock market trading life will depend on your ability to protect your capital.

The market is a bit “oversold” at this point, but these conditions can worsen. Given the market close it would not surprise me to see this market fall further without a bounce. Just taking a look at the lack of urgency from the VIX tells me this market has much further to correct.

Stay prudent, cut your losses and enjoy life!