Monday, March 24, 2014

Nasdaq Crushed -- Leading Growth Stocks Pummeled -- Shorts & VIX Fail to Follow Through

The market continued Friday's sell off. In similar fashion, the market opened higher, only to be met with immediate selling. The Nasdaq traded down over two percent by noon, but an afternoon rally cut those losses in half. Volume was heavy, above average, but not as heavy as Friday's quadruple witching, but still heavier then any other day during the the previous week, in which the market attempted to rally. Interestingly enough, the VIX, a measure of market volatility, did not spike as would have been expected, considering the two high volume reversals the last two days. Indicating little fear.



Leading growth stocks were pummeled in above average volume. Short term, a few are damaged and need time to setup again, but many are continuing through their consolidations, in a somewhat orderly fashion, looking to tighten. Few are damaged beyond repair, keeping expectations for a full blown bear market low.

Short setups tried to break down and follow through, but to no avail. Continuing their pattern of frustrating shorts, despite heavy selling in the indices over the last two weeks. While setups continue to hold moving averages and appear ready to rollover, traders need to keep stops tight with leading growth stocks failing to break down completely.

It is difficult to make profitable trades in either direction for more then a day. But a lack of follow through by short setups, and few complete breakdowns in leading growth stocks, indicates the pullback could be under accumulation for another profitable rally attempt, rather then distribution headed for a bear market. Stay alert, the market has had a bad habit of turning really quickly and leaving traders behind chasing performance.

THE SETUPS

US Silica Holdings (SLCA), after doubling in price over the last year, is in the process of forming a cup and handle base. The stock has run up over forty percent the last two months to move up the right side of the base, and has recently pulled back to the twenty day moving average in lower volume to form the the handle. A breakout above the handle high of  $37.25, sets the stock up for another run into fifty two week highs.



Dean Foods (DF) has pulled back to its fifty day moving average on low volume for the second time since breaking down from a head and shoulder pattern in December. The stock is in the process of rolling over in higher volume and could test recent fifty two week lows if the market pullback deepens.



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