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A Volitile Market Turns Ugly October 10, 2014

Posted by Tom in Thoughts.
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This week Tuesday, Wednesday, Thursday and Friday were volatile to say the least.  Roughly 2% moves down, then up, then back down again.  Folks are nervous; very nervous.  Friday afternoon was especially rough with stocks not finding many willing to buy and hold them over the weekend.  On the chart below I spot in Wyckoff “Reverse Trend Lines” which form a price channel (red lines).  IMHO the close on Friday overshot the lower line.  I’m expecting weekend investors to come in on Monday morning selling, then (perhaps) a recovery back up to around 4350 (dashed blue line).  What concerns me is how quickly that 4350 support level was blown through . . .no hesitation on Friday.

NASDAQ

The next stop?  4200 could be a place to find support, but it’s really hard to tell.  Any news out of Europe or West Africa or Syria could put the market down another 2-3% in a hurry.  There are some good stocks out there, it’s just that not many want to take the risk in buying them right now.  Next week brings us more 3rd quarter earnings announcements, that will be watched closely.  So far they’ve been pretty good, but the Banks start next week.

Sentiment (that blue line above the price chart) remains negative.  That along with weak prices makes me comfortable hold modest ‘short’ positions.  How weak is this market?  Let’s looks at the 1500 stocks in the S&P 1500 Index below.

S&P 1500 Price Strength

No surprise that prices a weak across the board.  (pie chart above is of near term price strength)

S&P 1500 A-D

And over 75% of the stocks are in Distribution (a.k.a selling).

I have very few stocks (longs) that I am holding plus few and growing ‘shorts’ (they go up then the index goes down), with a fair amount of Cash.  There is no need to be a hero in here and there is no way to determine how long this will last.  With volatility coming back into the market and many sitting on the edge of their chairs, we could see a few ups and downs before any recovery sets in.  Right now the near term is down, that we can see.  I have removed the “?” marks off of the price chart showing Wyckoff points and confirming a Distribution structure.  What really threw me off was that volume spike on the 3rd Friday of September.  It would be a confirmation of a Up Thrust if it were not camouflaged by the high options volume.  Note to self.

Watch for a Close above that upper red trend line + a day after to confirm a possible trend back up.  Until then be defensive.  Have a good week.       ……… Tom  ………

price chart by MetaStock; pie chart by http://www.HighGrowthStock.com.  Used with permission.

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