Friday, March 21, 2014

Market Suffers Another Major Distribution Day NYSE A/D Line Near New Highs

The S&P 500 opened higher and rallied to new fifty week highs on its way to a confirmed rally. Unfortunately, as quickly as the market opened, it reversed and sold off in heavy volume to mark another major distribution day, continuing the correction that began March 7th and closing at the lows of the day.

Leading growth stocks continued to under perform the general market and sold off in heavy volume as value stocks have taken the lead. This is not the first time over the past year this has occurred, and in each case a few leading growth stocks did manage to put on big gains. But, in each case, the rallies were short lived until growth stocks were able to resume leadership a few weeks later. Overall, trading in leading growth stocks tended to be erratic during these periods.

The NYSE advance/decline line continues to make new highs. Bear markets do not generally begin when the advance/decline line is making new highs, but major pullbacks and corrections do.

Today's erratic trading and high volume were due to option's expiration. Expect some follow through into Monday, but we should start getting a better sense of direction later next week. Even if the market falls into a major correction, a rising advance/decline line and still intact and consolidating leading growth stocks indicate that another major trade able rally could develop once the pullback/correction runs its course. Traders should be on the lookout for further tightening among leading growth stocks as an indication of a developing trade able rally, or, a lack of tightening as an indication of further downside.
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