Today we saw the S&P gap down on central bank news out of Japan, recover losses, only to finally retreat and close just off of the day's low. Although investors received a favorable supportive bounce off of the S&P's 50 day MA last Friday in what seemed to be the beginning of the third resurrection of this uptrend, the amount of distribution days and price/volume action on down days relative to up days is not constructive and warrants caution.
Note: IBD's Big Picture issued a "Market in Correction" following today's (6/11) 7th distribution day for the S&P 500.
A couple of notes from the SPY daily chart:
Note: IBD's Big Picture issued a "Market in Correction" following today's (6/11) 7th distribution day for the S&P 500.
A couple of notes from the SPY daily chart:
- As mentioned, Friday's bounce off of the upward trend line was a positive sign, but today's market action is not conducive to retaking market highs.
- Ideally, as with previous tests of the upward trend line by the S&P, we would like to see a smooth move to new highs on convincing volume. Notice how easily the SPY retakes its highs off of the 2/25 and 4/18 pullbacks. Yesterday's stalling action and today's gap down are not constructive signs.
- Keep an eye on the upward trend line. If it is breached on the downside, we could be in for the pullback investors have feared for some time now.
Additional notes:
Plan of action:
- Although general market action is negative overall, leading stocks held up well today with most losses coming on lighter volume.
- Financial Engines (FNGN) saw heavy institutional support yesterday breaking out almost 4% on volume nearly 300% above its 50 day average. It kept most of its gains today retracing just 1% on volume lighter than average.
- CBOE Holdings (CBOE) also reacted fairly well, even breaking into the green around mid-day before eventually closing lower on lighter than average volume. CBOE broke out of a 3 weeks tight pattern on 6/7 followed by a 3% move on 6/10 accompanied by high volume.
- Web.com Group (WWWW) has retreated the last couple of days, but volume has been very light, which is a constructive sign after its 3 weeks tight 6/7 breakout on high volume.
Plan of action:
- Consider taking profit off of the table in big winners. Tighten stops in recent purchases.
- Market action is too choppy to safely buy pullbacks. Refrain from any new purchases until we see a convincing up move in the direction of new highs on high volume.
- Keep an eye on leading stocks. Should we experience consolidation in the general market, leading stocks will have an opportunity to digest gains and prepare for the next leg up.
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