Jerry Samet
08-02-2014, 11:39 AM
After a big decline you want to look at the quality of the bounce. It the market rebounds with vigor the worst may be over, if not then further downside is likely coming. Yesterday’s action was not encouraging. The major averages were weak most of the day and after a couple of rally attempts the markets finished in the lower half of their intraday ranges. The COMPQ led the way down with a loss of .39% while the SPY was off by .29%. Small cap stocks were the weakest as the RUT declined .46%. All the major averages closed in the lower half of their trading ranges and all are now below their important 50dma’s. This is a sign of real weakness. Volume was lower across the board so there was no distribution yesterday, but this is not unusual for a Friday in the summer. Leading stocks did better than the overall market with the leaders index rising a bit. The index of quality growth stocks was higher by .31% on slightly lower but still well above average volume. The index remains below it’s 50dma and the short term 9 and 17dma lines have turned down and are heading toward the longer term moving average. When a leading stock is below the 50dma and starts to live below it the stock is generally considered broken. The market looks like it is going to correct. There have been many times in the recent past where the market looked like it was going to crack but then turned around. It may do so again, but right now both the major averages and the leading stocks are acting poorly. Jerry