Monday, October 06, 2014

Market Rally Attempt Nothing More Then A Mirage

The indices have swung wildly from day to day over the last two weeks. Each time the market sells off, it seems to get bought back up just as strongly. This is unusual action for a rally, but not for a correction. Most of the biggest up and down days in market history have been during corrections. But the one constant, volume, has never confirmed the strong up days. As we've experience over the last three months, volume continues to trade higher on down days, and lower on strong up days.

Outside of a handful of speculative names, GoPro (GPRO), Palo Alto Networks (PANW), Vimicro International (VIMC), and Mobileye (MBLY), the bulk of leading growth stocks remain in consolidations and need at least a few more weeks to complete. The few stocks that are ready to breakout, tend to be sloppier, later stage consolidations, with lagging relative strength.

Short trading ideas have continued to follow through and have been quietly digesting their recent gains during the last three days. Most are extended from low risk entry points, but could provide some quick trading opportunities over the next day or two as the market squeeze runs its course.

The market is indicating further downside, even though another rally attempt is to be expected as we approach the official start of earning's season. Markets rarely sell off straight down without a one to two week, or more, rally attempt after the initial sell off from the top. Short traders need to be patient with their positions and prepared to start tightening stops to protect profits with the next wave of selling.
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