Jerry Samet
01-09-2016, 11:47 AM
The market started out higher yesterday, but it didn’t last long. I said that we were due for a bounce after a week of declines. After a sell off the quality of the bounce is critical. Yesterday’s bounce lasted about a half hour before sellers came in and killed it. The major averages spent the rest of the session selling off and all closed at or very near their intraday trading lows. The SPX led the way down with a loss of 1.08% while the COMPQ was close behind by falling .98%. Volume was lower across the board from Thursday’s very high levels, but it was still well above average. This mitigates the damage but continues the pattern of of high volume declines for the entire week. Large institutional players were still selling stocks on Friday. Leading stocks were hit as well with the leaders index falling .96% on the day. The index closed well below it’s important 50dma and the 9dma has now crossed below the 17dma. Volume on the index was lower than Thursday but still well above average, a big negative. For quality growth stocks the 50dma is a big line in the sand. Stocks below it are generally considered broken and should not be bought. The picture looks pretty bleak right now. As I said in my last update the RUT and MID, representing small and mid cap stocks, broke below their August lows on Thursday. Yesterday the NYA, the broadest measure of New York stocks, closed less than one percent above it’s August low. If it can’t hold that low it is a very bad sign. Many of the major averages are now in correction territory. The SPX is 9.8% below it’s high and the COMPQ is off more than ten percent. The Transports are down more than twenty percent. The eight percent level is critical. Research has shown that this level contains seventy-five percent of all declines. These minor corrections are pretty common. Once you get past this point the risk that it turns into something more serious go up dramatically. We are now past this level. After this week’s decline a bounce of some sort is to be expected and maybe news of more QE around the world could cause a false rally as it has many times in the recent past. The risk right now that we are in a major correction or even a bear market is pretty high and getting higher. I see no reason to be taking any long positions right now. Jerry