Tuesday, April 15, 2014

Little Good News for Bulls Despite Yesterday's Rally

The market finally managed to rally yesterday, unfortunately, volume was well below average, and early week rallies during corrections, and counter trend moves during holiday shortened weeks, tend to be bear traps. The rally attempt was more a result of an over extended market needing to digest its losses, and traders being gun shy after two days of volatile, above average volume selling, needing to take a break.

The Nasdaq officially traded in correction territory, down over eight percent, and is on the verge of undercutting its February lows at 3,968.19, marking the first time since this major leg of the bull market began at the end of 2012, the index undercut two previous lows after breaking out to new highs. The index is in the midst of potentially forming a bearish, broadening tops formation. The good news, there should be another multi month rally after this correction runs its course, to complete the pattern. For now, all the major indices look poised to test their two hundred day moving averages before attempting a serious rally.

Leading growth stocks bounced back along with the market, but quickly turned lower on any market weakness during the trading day. A few stocks are ready to rally further and a handful are managing to follow through to new highs. Unfortunately, the majority need at least a couple of weeks to digest recent volatility and losses, but remain within acceptable correction loss levels, and continue working on new consolidations.

Short ideas have been disappointing. While a few stocks have managed to break down in heavy volume and follow through, most squeeze back quickly with every rally attempt. Holding a short trade longer then a few days, is too risky. There are still setups tightening into moving averages and appear ready to roll over, confirming further weakness with yesterday's rally attempt.

Friday, most of the weekend, and even yesterday, turned out to be great days to take off and recharge after recent heavy, above average volume selling and volatility, especially with the warmer weather. Outside of day trading, most traders are better off in cash until the market tightens up into the next trend, most likely down, based on recent action.


Ocwen Financial (OCN), featured recently, rolled over at its fifty day moving average and broke down below its trend line in increasing volume, but failed to follow through, squeezing back to test the fifty day moving average and broken trend line over the  last four days. Look for the stocks to roll back over and test near fifty two week lows.

Rackspace Hosting (RAX), another recently featured stock, has been slowly rolling over, and is finally threatening to break fifty two week lows. Despite the market rally yesterday, the stock spent the entire day trading lower, displaying major relative weakness. Look for a high volume break of recent support around 30.75.

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