Good Evening,
There was more selling today, but the dip buyers stepped in and brought the market off its lows for at least a little strength. The real damage being done is mainly in small caps and momentum stocks. As we saw earlier in the year, they can continue to fall quite hard so make sure you stay disciplined. The market is still technically well, but there are some issues developing that require increased vigilance. However, that is always the case when there is a period of selling during an extended market.
RevShark (James DePorre)
7/08/14 8:14 AM: Morning Thoughts
“The S&P500 and DJIA were down just 0.35% on Monday but if you looked deeper there was quite a bit of ugliness. The IWM lost 1.8% which was its worst performance since April 25. The IBD 50 was down 1.6% and not a single stock on the list managed to close in positive territory.After the run the market has made since the low in April the pullback is hardly a blip on the screen but that doesn’t mean that we can completely ignore the poor action. It is still extremely premature but we do need to contemplate whether this is the start of a topping process.I’m sure the bulls are scoffing at the notion that the market could see some sort of short term top. After all any sort of skepticism has been punished quickly as the market quickly turns back up and traps the overly anticipatory bears.My advice has been to not even think about a market top until there is some negative price action. Even that has been proven to be overly pessimistic. Twice in the last month we have had one day pullbacks in the S&P500 but it was totally forgotten within 24 hours.Nonetheless after a day of selling like we had yesterday some increased caution is warranted. The big danger is that this is a prelude to the same sort of action that we had back in late March that led to a very ugly correction in momentum and small cap stocks. The correction was completely hidden by the defensive names in the senior indices but under the surface it was brutal, much like yesterday.The idea isn’t to rush out and sell everything just because of one poor day but it is important to watch for signs that some downside momentum is building. The losses can come very quickly in a pullback like this. A number of traders that I know commented that yesterday was their worst day of the year as they were caught holding large positions in key momentum names.The big risk is that increased defensiveness will result in being underinvested and missing out when the market regroups and runs straight back up. That is what has caused so many fund managers to underperform for the last couple years. As soon as they take some action, just in case the market is finally going to correct a bit, it turns right around and acts like nothing at all has happened. The bears are squeezed and the underinvested bulls have to chase once again.Of course if you aren’t a little cautious after taking a hit there is the risk that this is the time when the market really does correct in earnest. My belief is that it is better to error on the side of protecting capital but that can be very frustrating in a market that seems to forget its weaknesses so quickly.At this juncture the important thing is to manage positions carefully and not let technical breakdowns build. If something doesn’t act right then cut the loss and worry about buying it back later on if you still favor it.Earnings season starts tonight with AA but the key reports don’t start to roll in until next Tuesday when INTC reports. There aren’t a lot of news catalysts right now and that is likely to keep the action choppy.”
NEW YORK (CNNMoney)
It might be a big World Cup day, but in the stock market, it was “World Slump” day.
The continued selling left us with the following signals: C-Neutral, S-Neutral, I-Neutral, F-Neutral. We are currently invested at 25/C, 75/S. Our allocation is now -3.31% on the year. Here are the latest posted results:
| 07/08/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.4612 | 16.3788 | 25.65 | 35.2762 | 26.7615 |
| $ Change | 0.0009 | 0.0324 | -0.1740 | -0.3727 | -0.2291 |
| % Change day | +0.01% | +0.20% | -0.67% | -1.05% | -0.85% |
| % Change week | +0.03% | +0.36% | -1.06% | -2.33% | -1.55% |
| % Change month | +0.05% | -0.31% | +0.24% | -1.36% | -0.36% |
| % Change year | +1.22% | +4.05% | +7.43% | +4.77% | +4.68% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.2289 | 22.6764 | 24.5728 | 26.1292 | 14.8558 |
| $ Change | -0.0236 | -0.0890 | -0.1260 | -0.1568 | -0.1021 |
| % Change day | -0.14% | -0.39% | -0.51% | -0.60% | -0.68% |
| % Change week | -0.23% | -0.70% | -0.92% | -1.09% | -1.25% |
| % Change month | -0.01% | -0.09% | -0.15% | -0.21% | -0.24% |
| % Change year | +2.45% | +4.04% | +4.75% | +5.22% | +5.63% |
Here’s what the SPY looked like after the selling today. All charts courtesy of stockcharts.com.
“Price hit resistance and is now halfway to the bottom of the short-term rising trend channel. It is still staying up support at the top of the intermediate-term ascending wedge. The PMO had a negative crossover its EMA causing yet another whipsaw signal, a SELL signal. Volume reached the 250-DMA on the SPY, but the $SPX volume is lagging.”
“The market is finally experiencing some pullback. It needs to experience more decline in order to get intermediate-term indicators out of overbought territory. Momentum has stalled based on a flat PMO that is generating whipsaw signals. The pullback likely won’t finish until price at least hits support at the bottom of the short-term rising trend channel, but that will only require a small decline and more is definitely needed.”
No Sir, I’ve been whipsawed one too many times this year. Like I said yesterday, I’m hanging in there until at the very least I get a real sell signal. Lets hope this dip ends soon so we can gain some ground on another positive year. Keep praying! Have a nice evening.
God bless,
Scott
