OT:Market under pressure

No surprise, IBD changes to “Maket under pressure”. Yesterday the Naz hit distribution day 6 in the last 25 trading days and today was an emphatic #7. I thought we might go to “Market correction”, but not quite.

The Nasdaq skidded 2.1%, closing under its 50-day moving average. The S&P 500 and the Dow Jones industrial average fell 1.4% and 0.9%, respectively. Of the three, only the Dow closed above its 50-day line

Volume rose on the Nasdaq and the NYSE.

The S&P 500’s distribution-day count stayed at three. The combination of losses and higher volume gave the index a new distribution day Thursday, but at the same time the S&P junked its July 6 distribution day because of time. After five weeks, a distribution day is no longer relevant to current conditions.

The Nasdaq count rose to seven. Worse yet was the cluster of distribution: The Nasdaq suffered four distribution days in the past six sessions.

Distribution involves a significant decline in a major index in higher volume, which is a sign of institutional selling. Individual investors should never get in a shoving match with the indexes. Funds’ buying or selling power is far greater than what individual investors can wield.

Could the market be marking a short-term bottom? That question might sound premature, even silly. But if a short-term low is being sketched, it would be in line with this year’s action on the Nasdaq. The index has consistently bounced off the 50-day line, though sometimes after a brief and shallow stay under the line.

Rather than play that game again, bulls would probably prefer a heftier pullback. A pullback of 10% to 20% could help chase out the weak holders and perhaps initiate sector rotation.

One gauge for determining whether the market has pegged a short-term bottom is the put/call volume ratio. This secondary indicator closed at 1.08, not quite the elevated level that has marked market lows in the past. A reading of 1.15 or higher is considered bullish for the stock market. The last such day was Jan. 18, when the ratio hit 1.18. From there, the Nasdaq rose 16% in about six months.

Another signal came from the CBOE Market Volatility Index, known also as a measure of investor fear. The VIX, as it’s known, soared to the highest level since May 18. The index climbed 45.5% above its 10-day moving average. Any time it leaps more than 20% above its 10-day average, it can confirm a positive reversal in the market.


Still alive, but barely kicking
Distribution days: Naz 8, S&P 5.

The Nasdaq dumped 1.9%, while the S&P 500 lost 1.5%. Both closed below their 50-day lines…Volume rose on the Nasdaq

A better way to look at Thursday’s carnage is in the context of fund buying or selling.

Among IBD’s 197 industry groups, only two pegged slight gains. Confectionery foods and Canadian oil explorers inched up 0.2% each, according to preliminary data.

On the downside, the day’s worst performers included airlines, data storage, dairy, steel and chip stocks.

This suggests that funds are doing some across the board lightening. Is it the beginning of more consistent selling and perhaps a market top

Historically, market tops take longer to sketch than market bottoms. A top can take months

yada, yada, yada.

Another time for reevaluating your plan. Do you intend to bottom pick? Do you plan to raise cash? Will you stay 100% invested? Brains, not guts.