The market followed a similar pattern to Wednesday’s action. A mid-morning drop in equity prices was met by buyers pushing stocks to the highs of the day. There was no late day sell off, but volume dropped off a cliff. Jobless claims jumped higher than expected and the Philly Fed index dropped once again. Economic news can be described as bad, but not as bad as it could be. Today’s move was solid in terms of price action the downside was the lack of volume. Institutions were actively involved in Wednesday market, but looking at intraday volume big time sellers were the ones doing the volume. In addition, despite the big price gains it was mostly defensive names moving this market higher. This market continues to remain tricky and without solid leadership (still thin at best) cash remains king.
A big question many want answered is how to invest in this type of market. Many market pundits will focus in on “defensive” names like medical and utilities. Others tell you to search for “yield.” The issue with all of these strategies is capital preservation. The yield may lessen the blow when these stocks are sold, but they don’t protect against BIG LOSSES in the stock market. What good is a 5% yield when your stocks drop 15-20% or more? It doesn’t do you any good; you are better off staying on the sidelines with CASH. How to invest in a market showing wide and loose price patterns is simple: CASH IS KING.
Stocks like AAPL while are moving up cannot keep pace with the NASDAQ gains. PCLN another leading stock continues to see its RS line decline for over a week now. It is not the type of action you want out of a leading stock. There are other examples out there, but these are two big leaders who have “held up.” NFLX was a former leader of the bull market from the March 2009 lows. Today the stock was decimated after it revised its subscriber growth. However, looking at the stock’s chart it was clear as day there was trouble ahead. Fundamentals are important when you buy a stock, but the technical picture is how you sell a stock. Often times the stock’s fundamentals are best at the top.
Friday’s market will be dominated by options expiry. Volume will get a kick from options expiry, but pay attention to the individual leaders. Cash remains king.
Have a great weekend.