Thursday’s action was filled with failed rally attempts and heavy volume selling. Even as the Euro stabilized our markets began to shift its focus away from the Euro and onto other potential pitfalls for the market. Whatever the market was viewing as the reason for the selling it simply doesn’t matter what we are seeing is a complete meltdown of our markets. The heavy volume was indicative of the panic see and although the selling pushed us further into oversold territory. This market correction remains firmly in place and ti will take plenty of work to clear the heavy volume distribution.
The only relevant market index that remains above its 200 day moving average is the Russell 2000. While the NYSE composite has taken out its flash crash low it remains the weakest of all the indexes and today was no different. Any leading stock from the bottom of 2009 have been hit and hit hard. A break down like we saw today, history has shown for the market to continue its selling. Like the market correction in 1998 the market simply rolled over and sliced through the 200dma with ease. Will we do the same, it is probable, but if you had been raising cash in early May you would be avoiding this mess right now.
Posting charts would be a waste of time here as many of them are simply blown up and we simply need time in order to fix them. However, in the near term any rally we are looking to short, even if we collapse here the subsequent rally will (using history as a guide) come on decreasing volume. Essentially, it’ll be a weak move higher setting up patterns that will be high probable shorts.
A big mistake here would be trying to play the market for a bounce. Like those in March who were playing for the market to roll over will be the same ones playing for a market rebound. Unfortunately, they will more than likely they will not cut their losses and ride their opinion until it wipes them out. Don’t take this as a go ahead to pick a bottom because more than likely you’ll be wrong. Stand aside before the market makes a turn and setups for a possible run.
There are a few stocks holding up, but they are far from a proper buy point. On the flip side, we do have possible short set ups that will be better served if we get a rally. In the meantime, stand on the sidelines and enjoy the action. Patience is what we’ll be practicing.
Stay disciplined, cut your losses, and enjoy your cash as it is KING!
Disclosure: No Positions in Stocks Tagged