The market pared early losses yesterday, but ended the day down on above average volume. Leadership stocks underperformed blue chips and the Nasdaq, which is heavily weighted in the leadership group now, outpaced other indexes in selling volume. This marks a clear distribution day.
One distribution day doesn't end an up trend, but it does give us cause to pay attention. The S&P 500 has pounded on its 50-day average pretty hard over the past two trading sessions. The problem here is that the market doesn't like uncertainty and the European debt problem that led to a bailout of Ireland this week is feared to be spreading to both Spain and Portugal. Institutional traders tend to sell first and ask questions later. This may or may not prove to be an overwhelming issue for the markets. But right now, it's an unknown and given the fact that the markets have recently seen the late day buying trend flip to a late day selling trend, we believe institutional money is lightening up into strength.
Yesterday we felt the risk increasing, so we unloaded ROP, which was underperforming our NFLX and VIT holdings. NTCT, meanwhile, stopped out but then closed the day strong.
Risk has clearly increased this week and while we don't have any predictions about which way this market is going to break, we are going to use today's likely stronger open price to hedge our bets.
Disclosure: long nflx and vit