4:00 pm ET: Yesterday was the day of reckoning as the major averages were either going to break through previous resistance or bounce back down. The topping tail in the Dow Transport Index (DTX) was the "tell" suggesting that a turnaround was imminent. Although direction can be predicted, the magnitude of the move cannot and today's sell-off was the worst in months, especially on the Nasdaq. With the need to account for every move in the market, the financial media is blaming today's sell-off on the global recession which is a lot of hooey. The global recession along with the expectation of disappointing third quarter earnings numbers have been discussed to death over the past several months and they are not the cause of today's decline. The market has been running on empty for a while as mom and dad continue to stay away from the gaming tables in droves. The sheer volume of trading activity especially in the levered exchange traded funds exposes the high level of institutional activity. In essence, Wall Street is trading shares among themselves while Main Street is choosing to put its money elsewhere. Right now, placing your money under the mattress looks like a safer spot than the market.
The risk-off trade was on in spades today with the greenback and treasuries being one of the few vehicles trading in the green. Sectors across the board were bathed in red with tech taking the biggest hit. The exchange-traded funds of medical devices (NYSEARCA:IHI), IT (NYSEARCA:VGT), and tech (NYSEARCA:XLK) itself all broke resistance levels. Semiconductor stocks heavily populated the New Yearly Lows list with tech bellwether Intel (NASDAQ:INTC) thisclose to joining it. Tech darling Apple (NASDAQ:AAPL) shed another 3% today and the fact that it can't even make an earnings run should be sending a loud signal to its investors. If you own Apple and want to keep it, I strongly advise you to take out some insurance in the form of puts. In this market it is much better to be safe than sorry. (Personally, I would have taken profits when the stock broke $650.)
Today's reversal could be just a one day event judging from the internals. The Trin closed the day an inch away from bearish contrarian territory and the topping tail in the VIX could mean a reprieve for the bulls on Monday. The key word here is "could" as this market seems to have a mind of its own. (I just didn't want to end the week on a downer note.) Have a good one!
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