Today we had another nasty drop in the markets. The Nasdaq
which has been the strongest acting index for weeks lead today’s decline with a
drop of 2.15% . Even the Dow which generally speaking is the most
defensive index and the least impacted during a decline fell almost 2%.
The breadth of the decline was wide (very few stocks were shielded from it),
which is not a good sign.
Since the first of the year we’ve had a very shaky market,
lots of wild swings intraday, which usually portends a top … not necessarily
implying a major decline, but certainly a decline.
Volume for the past two weeks has been way above average
with very little price movement, which tells us the market is struggling to
make headway in its’ current direction (up). Strong volume with no upside
gain can be a signal that the big guys are exiting while there are still buyers
in place. They unload gobs of shares to the unsuspecting. This
works well as long as the buyers outnumber the sellers, but what we saw today
is that the buyers dried up and the selling continued, causing the market to
crater.
Except for the Nasdaq, the 50 day moving average was taken
out in high volume today. A moving average is exactly what it sounds like
… it is the average price over the previous 50 days and used very heavily to
help institutional investors get a gauge of the state of the market. When
it is healthy, the current price is above the moving average, and the MA is
rising, and when things start to get iffy we see the market close below it and
eventually the average itself starts curving downward.
Who cares … right?? Well, the 50 day moving average is
a particularly good indicator for many traders because most big funds use the
50 day to buy. So they wait for the price to fall back down to this
level, then they start purchasing and the price bounces higher as a
result. Many ‘value’ investors use this important level as a buying
opportunity. But, today, we saw the market pierce below the MA with NO
slow down and in fact, volume increased as the price kept falling below
it. There was no support there … which isnt a good sign.
The 50 day average was broken on the Dow, NYSE and
S&P500, while the Russell 2000 (small caps) and the Nasdaq are still
holding above it for the time being.
Volatility has been increasing over the past few weeks but
went through the roof today, which is a troubling sign as well. This
means people are getting nervous and getting sketchy with their trades.
In fact the VIX which is a measurement of market sentiment and fear of
investors rose almost 30% today … the highest level since October of last
year.
As I mentioned in previous posts, the market is very
‘pricey’ right now, so dropping a bit should bring in the value buyers that
have been sitting out. Of course, time will tell whether their buying
will reverse the decline and bring more gains (which is exactly what happened
last year in April, June and October) or whether they will sit out this time
and let the market correct properly.
We are VERY late in this bull ‘cycle’ which started in March
2009 with no major correction since and we are VERY overdue for even a mild
correction since we haven’t had anything sizeable in approximately a year and a
half. Late cycle markets are usually bumpy … so
today isn’t surprising in that regard.
Looking at the market using a longer term perspective, from
a technical analysis standpoint, we are still very much in an uptrend on all
indexes and holding a small amount in the market for a bit longer to see if the
strength will resume when prices fall a bit is prudent.
Our new volatility trigger kept us in today, although we
were close at one point to exiting. The new signal gives us a little more
‘cushion’ to ride the small bumps in order to gain the larger move.
For now, we remain cautious with only a 30% investment in
our flagship ‘The One’ fund and still fully invested in our longer term
strategies. Short term, things are definitely broken or breaking (in the
Nasdaq’s case), but long term we are still looking at a healthy market,
although a bit frothy.
Regardless of the outcome, we will continue to monitor and
act accordingly protecting your hard earned investing dollars …
Hope you have a wonderful and safe weekend.
Respectfully,
Randall Mauro
Resnn Investments, LLC
Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times. To sign up for this free service, please visit our website at http://resnnInvestments.com
Our market wrap is published weekly, sent via email on Friday after the market close, with alerts sent occasionally mid-week in particularly volatile times. To sign up for this free service, please visit our website at http://resnnInvestments.com
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