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Stocks Reverse as the NASDAQ Flashes a Distribution Day a Day after it Confirms a New Uptrend

|Includes: Apple Inc. (AAPL), DIA, EBAY, QQQ, SPY, WYNN

Coming off AAPL’s earnings the NASDAQ was going to slump at the open. CPI figures came in as expected while housing starts showed an unexpected gain. Banks helped the NYSE indexes pushed higher from the start as MS stock reported better than expected results. However, it wouldn’t be until the Federal Reserve’s Beige Book was released. There was nothing new, but it did not reveal any new quantitative easing. Late in the day news out of Europe over the size of bank guarantees were not as big as expected. The news emboldened sellers pushing stocks near the lows of the session. The NASDAQ finished the day with a day of distribution signaling this confirmed uptrend in doubt.

IBD called a follow-through day last week with the NYSE composite finishing the day with a gain of 1.5%. Unfortunately, the S&P 500 and NASDAQ finished near the lows of the session not confirming the market uptrend. A true follow-through day should not have any “doubt.” Yesterday’s follow-through day was good, just not great. First, the follow-through day came well after the 4-7 day window. In addition, the follow-through day came when the indexes were 10% off their lows. There were many issues with the follow-through day, but we must respect it. However, today’s distribution day really calls into question whether or not this uptrend will be successful. Be quick to cut losses if you are long stocks.

In after-hours trading EBAY and WYNN broke lower as earnings were not as stellar as the street expected. Both stocks weren’t healthy looking to begin with, in fact WYNN looks like a great short. However, the lack of positive reaction to earnings is more of a hint of a weakier market than a strong one. A prime example is AAPL and its inability to rebound. In a strong market buyers would have jumped in and scooped up the stock. However, the stock closed below $400 level in heavy volume. Given the overall market reaction and the current reaction to earnings certainly puts a negative tint on this market.

This is a tough market making cash remain king!