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Small Caps Lead the Market Lower as End of Day Selling Leaves a Black Eye on the Market

|Includes: AABA, AAPL, BIDU, BKNG, C, CMG, CRYFQ, DDC, DGP, DIA, EBAY, EGO, EWY, SPDR Gold Trust ETF (GLD), GMCR, GOOG, GS, IAG, IBM, ISRG, MMM, MSFT, NEM, NTR, PCP, PG, QQQ, SHLD, SLV, SPY, TBT, UGL, VXX

Overseas fear, this time out of China pushed stocks lower at the open as traders feared the worse.  Buyers didn’t waste much time before pushing the market higher closing the morning’s gap.  Volume jumped at the open, but fell rapidly as the market moved to close the morning’s gap.  The morning high was not to be seen again as buyers simply weren’t in the mood to keep stocks from falling.  An early afternoon push did try to reach the morning high, but sellers won the battle and finally breaking stocks at the close.  Another ugly close, regardless of volume coming in slightly lower than Friday today was ugly plain and simple.

 

The 200dma for the S&P 500 is now a big time resistance area.  Today’s end of day action highlights the weakness we continue to see in this market.  Furthermore, when the 200dma acts as a major resistance area the market tends to head much lower rather than following through to the upside.  In addition, the S&P 500 continues to enjoy (heavy sarcasm) volatility and the wild price swings is not an indication of an index finding its bottom.  There are plenty of warning signs, the S&P 500 being unable to recapture its 200dma with vigor is a major one.

Now the NASDAQ is back below its 200dma as it sliced through the moving average during the late day sell-off.  If it weren’t for Apple Computer and Microsoft the damage would have been much worse for the index.  Volume did come in lower on the day as the late day volume selling on Friday was gigantic, but the price action alone speaks VOLUMES.  The NASDAQ certainly is holding up better than the S&P 500, but it isn’t saying much and it too is warning of further downside ahead.

While there are plenty of stocks breaking down we do see a silver lining.  We do have a good amount of stocks holding up in the face of this ugly market.  Do not mistake holding up with buying, but ones that are holding up should be on a watch list.  As the market works itself out of this correction the stocks that have held up the best will have the highest probability of leading us higher.  Now, we have no idea when the market will rebound and begin a new uptrend. But, we’ll be able to take clues from the market when it is OK to begin operating from the long side.  Cash remains king in this market!

Remember, keep up with studying history and reviewing your trades as well as the market’s greatest winners.  It’ll keep you disciplined and out of this market until the time is right.




Disclosure: No Positions