Thursday, July 24, 2014

Frustration Not The Only Reason To Hate The Market

The market stalled today in above average volume, making this the 5th distribution day for the Nasdaq and SP 500 in the last three weeks despite the new rally attempt off the twenty day moving average. It seems every time volume runs higher, the market stalls or sells off, but on up days volume dries up. Even on gap up days the last two weeks the market has failed to follow through after the first hour and a half, either stalling for the day or in some cases closing near the lows of the day (7/14, 7/16, 7/22, and 7/23). The advance decline line which has led the market into new highs for the better part of the last year, has lagged as the market is reaching new highs. Accumulation is scant at best. About the only good news, no matter how bad the news, the market just seems to shake it off, for now.

Leading growth stocks are gyrating wildly from day to day, especially intra-day, making initiating and holding positions with tight stops very difficult, if near impossible. Most stocks are just stuck in wide and loose consolidations with just a handful of high quality growth stocks breaking out in above average volume, but out of later stage consolidations, which are more prone to failure. Facebook (FB), Chipotle Mexican Grill (CMG), and Under Armor (UA), gapped and broke out of cup and handle bases.

The story on the short side is not much different. Some stocks manage to follow through to the downside, but most just squeeze back into their consolidations or are squeezing above resistance levels to shake out positions. But most consolidations remain intact and in some cases a few hours to days from tightening up. Ocwen Financial (OCN) and CREE (CREE) are threatening to slice through their respective fifty day moving average in above average volume. Review the short trading ideas section for more potential setups.

Traders can hold well behaving positions, but profits have to be protected and losses minimized. The lack of follow through in either direction doesn't provide enough of a cushion to get aggressive or stay confident in positions. Strong stocks should breakout and keep moving, not stall around the breakout area. Traders should have learned over the past few months, profitable portfolios can turn negative in just a day or two, especially when there are so many red flags.
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