Today marked the 6th distribution day for the S&P and 5th for the NAZ in last 4-5 weeks, causing IBD to officially change the trend to “under pressure”
Stocks on this board often have a higher beta than the market and tend to be smaller stocks that the big boys like to unload during a downturn. That would indicate to some that it is time to be cautious with new cash buys. If you stay 100% invested and you have a big gainer and have faith in a fallen angel, you might consider reallocation.
Losses were mild and volume was light in the morning, but a wave of selling in the afternoon resulted in a bearish session for stocks. The Nasdaq composite slumped 0.8%, the S&P 500 0.5% and the Dow 0.4%. Small caps fell mostly in line with the Nasdaq, with the Russell 2000 down 0.9%. Declining stocks beat advancers on the NYSE by more than 2 to 1. The ratio was close to 2 to 1 on the Nasdaq. Volume rose on both exchanges, adding a distribution day to the count. Several prior distribution days in the indexes didn’t have the feel of heavy institutional selling, but Wednesday’s session did because of the noticeable weakness in highflying stocks and the intense selling late in the day.
There’s no shortage of technical and psychological indicators saying the market could be ready to pull back. For starters, the Nasdaq and S&P 500 closed below their 10-day moving average lines for the first time since the June 30 follow-through day. The Nasdaq has made an unusually long eight-week winning streak.
Meanwhile, according to the latest data from Investors Intelligence, the percentage of newsletter writers who are bullish is now 56.7%, up from 56.2% a week ago. Both are above 55%, which is considered a danger level. Bears were barely unchanged at 20.2%
A confirmed uptrend that’s now under pressure could have more left, but an elevated distribution-day count, plus weak action in leading growth stocks, is worth heeding. Now is the time to play defense, not offense.
Ah, the put on the S&P I kept thinking were cheap insurance have probably gone up, might need to use spreads.