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Stocks Fall in Light Trade as Leaders Look for Support

Goldman downgrades MSFT as Pending Home sales fail to ignite buyers

The past two Monday’s have not been kind as stocks slid in lighter trade.  Goldman Sachs removed MSFT stock from its conviction buy list sending the stock lower thus, bringing down the rest of the technology sector with it.  Although volume was light the magnitude of the price decline is something to take notice.  We saw the NASDAQ drop 111 basis points while the S&P 500 dropped 80 basis points, but we did see a number of leaders find support at key areas even on a down day.  Overall, the picture has darkened with leaders continuing to see selling, but with support near it is time for these leaders to step up and push higher.

 

Last week the market leaders took hits after racing higher from the September 1st follow-through day.  It is not uncommon to see market leaders reverse and trim their gains, but it appears more common than not these stocks pull back faster than normal.  Regardless, many are finding support and need to find institutional support.  Otherwise, this market risks the possibility of a more severe decline.

Goldman Sachs downgrade of MSFT was a big deal as MSFT makes up more than 6% of the NASDAQ composite index not too mention it hurts other technology stocks.  The firm has been in decline since 2000 and continues to fail at re-innovating themselves much like AAPL has done.  This continued failure of reinvigorating themselves as left many buyers on the sidelines no matter how “cheap” the stock may appear.  Investors want growth in new products and services and MSFT continues to disappoint.

Last year we saw plenty of 3-5% pullbacks and the occasional 8% pullback only to see the market and its leaders higher a month later.  The constant up and down action is not out of the question here and those who were able to hold through the small hiccups in the market were rewarded handsomely.  A few leaders are holding above their buy points, but a few are at or below.  It isn’t out of the norm to see leading stocks pull back to their pivot or below.  However, it is crucial to see these stocks reverse and move higher in a short time frame.  Further downside action will signal a decline more than a simply 3-5% pullback.

Sentiment has been decidedly BULLISH and these types of trading days will certainly change the minds of the weak bulls and favor the bears.  With volume being so light, a pull back of even of today’s magnitude appears like consolidation rather than foreshadowing a much bigger decline.  However, sentiment will more than likely tip to the bears as we are beginning to see bears stomping their feet this market is done.

The longer term trend is still in the uptrend and until we have more distribution and leaders falling lower this trend stays in place even if the short term trend is flat.

Always cut your losses short.




Disclosure: No Positions