Jerry Samet
03-14-2015, 11:53 AM
The market sold off hard yesterday, pretty much reversing Thursday’s gains. The major averages were lower all day and had significant losses. A late rally reduced those losses, but it was still an ugly session. The SPX led the way down with a decline of .61% while the COMPQ fell .44%. They closed in about the middle of their intraday ranges for the SPX and in the lower half for the COMPQ. Volume was higher across the board, so there was distribution on all the major averages. There is now a high level of distribution which is a big red flag. Leading stocks were mixed but generally lower. The leaders index had a small gain of .14% on the session and volume was about flat and average for the day. The index remains below it’s important 17dma and closed below it’s opening price. The 9dma is also about to cross below the 17dma, a negative sign. This break into new highs by the major averages hasn’t produced much. Few stocks have produced worthwhile gains and fewer have held them. The major averages have also had only small gains. When Mike Scott and I developed the follow through day confirmation model two of the rules for a successful follow through were(and still are) that the index had to rally at least 10% from the follow through and it had to last at least five weeks. The reason for this is that when rallies end the declines happen very quickly. Gains could take weeks to build up, but can disappear in days. Stocks fall much faster than they rise. If you don’t have enough time to accumulate enough profits you will likely not get out of your positions in time to preserve enough profit to make the whole exercise worth while. These weak rallies are typical of the late cycle action we are seeing. Rallies are weak and short and declines are fast and hard. I took six positions recently and had three gains and three losses. Overall it wasn’t worth the effort. I have pretty much given up trying to figure out what the market is going to do right now and look forward to a real bear market getting started so we can clear the decks for a new cyclical bull in which real profits can be made. Jerry