The major stock indexes fell hard once again today, with the red ink going into the close run on very heavy volume, marking today the third distribution day out of the last five (one or two shy of the four or five needed to trigger a sell signal from the very important confirming accumulation/distribution profile indicator.)
Officially, the Dow Industrials fell 2.0% on NYSE volume of 7.9 billion shares, while the NASDAQ dropped 1.2% on 2.9 billion. The leadership profile remains positive, with 293 stocks making new highs versus 58 making new lows. The short term momentum oscillators remain negative, non-confirming the bullish stance of the AlphaKing Trading Indicator. We have no new trades at this time.
The market continues to react badly to all news, with China tightening credit stances and the US increasing bank regulations the news De Jour events today. The technical bull/bear war has moved to the 50 day moving averages for the stock indexes (blue lines in the charts below,) and tomorrow’s close above or below those critically important technical lines in the sand should dictate what happens over the next month or so.
We have mentioned many times over the past couple of months that after prolonged rallies the likes of which we saw from March of last year through recent highs, a rapid retest of the 200 day moving averages (purple lines) lands shortly after the peak. The key is whether the stock indexes close below their 50 day moving averages tomorrow. The first close below the 50 after such prolonged moves in the past - on a weekly closing basis - have all led to four further week of bear misery that saw the 200 days coming into play. That’s quite a crash from current levels, though tomorrow has to end with a bear victory to begin the four week count, and that has yet to happen.
Semis held up reasonably well today, and a breakdown there would be a very bad development for the bulls. The market will go where the semis lead them, and tomorrow may answer the question of whether the semis are on the cusp of a bottom versus a continuation of the breakdown run to confirm the top is in.
We will wait for our trend indicators to turn negative before acting. Once they turn, we will be aggressive traders on the short side, though for now a cautiously ½ long/½ cash is the way to go as we await a bull/bear victor to be declared.
401K investors should have ½ of their portfolio invested in a stock index, or aggressive growth, mutual fund, with the other ½ remaining in a money market fund.
The Index portfolio is ½ invested in QQQQ with the other ½ remaining in cash.
Kevin Wilde, Chief Trading Strategist AlphaKing.com.
