Market Analysis and Summary
Wednesday’s action on the major market indexes was ugly. They reversed from session highs and closed sharply lower as volume swelled across the board, adding significant distribution to the NASDAQ and S&P 500. The reversal came right after the Fed minutes were released, in which the Fed expressed concerns over the market’s current valuation and made mention of their plan to divest themselves of their massive bond holdings, which they originally announced in 2014. Rising tensions in North Korea and Syria are not helpful either. Yesterday the major indexes rallied across the board, although their recovery was weak relative to Wednesday’s selloff. Volume declined on the NASDAQ and the NYSE.
Leading growth stocks sold off with the general market on Wednesday, but their action was not nearly as bad. The potential for a longer, deeper correction exists from here, but as it stands the major indexes are still holding up fairly well and the market’s leading industry groups are not waving any major warning flags at the moment. A few individual leaders have broken down below their 50-DMA’s on heavy volume, although others have broken out, rallied and are still holding their gains.
Nevertheless, the current risk/reward does not favor initiating new positions. The general market has been moving sideways since the middle of February and has become significantly choppier since it broke lower on giant volume on March 21st. Also, the number of leading stocks forming new, constructive bases is still on the low side. However, the process of healthy rotation is still underway. So, with more time, fundamentally sound, leading growth stocks will have the opportunity to continue building new, constructive bases, break out and ultimately sustain the market’s uptrend.
The market doesn’t go up in a straight line, so a short to intermediate term correction at this point would be considered healthy and normal. On the other hand, the market could just easily continue to chop back and forth in a sideways manner as it has been, which would ultimately serve the same purpose. While we wait to see how this all plays out, our focus would be on the preservation of financial and psychological capital. Use this time to make lists of the highest quality growth stocks that are building constructive bases and exhibiting the greatest relative strength. Except for positions with big cushions of profit, that haven’t triggered trailing sell stops, we would keep exposure to a minimum and always keep in mind, cash is a position. Also, now that the situation in Syria has been escalated, minimizing risk over the weekend may be a good idea for our active traders.
NOTE: The entry areas discussed in the charts below are either for very active traders, or for when the pressure comes off the general market and leading growth stocks are breaking out again.
The NASDAQ rose 0.25% as volume declined, finished the session between its 10 and 21-DMA’s and slightly below recent all-time highs.
The Russell 2000 rose 0.91% as volume declined and closed below its 50-DMA for the fourth consecutive session. Unfortunately, TradingView data was unavailable for this index at the time of this writing.
The S&P 500 rose 0.19% as volume on the NYSE declined and closed above its 50-DMA, but below short-term resistance.
The DOW stalled at its 21-DMA and closed near its low for the day, despite finishing the session up 0.07%. On the bright side, volume declined and it remains above its 50-DMA. Unfortunately, TradingView data was unavailable for this index at the time of this writing.