Leaders Index 12-1-17

It was a wild ride yesterday. The market opened lower, rallied a bit then sold off hard on news that Flynn was pleading guilty and cooperating with the special council. The major averages had significant losses, but about two hours into trading they bottomed out and started to rally, partially on news the Senate looks like it has the votes to pass the tax bill. They recovered most of the losses, but could not get back into positive territory. The COMPQ finished with a loss of .38% while the SPX declined .20%. All the major averages closed near the top of their intraday trading ranges, a sign that buyers came in as prices fell. Volume was lower across the board, which is good. You want to see lower volume on declines as it shows that large institutional players were not dumping stocks. It also allowed the major averages to avoid a fresh distribution day. Leading stocks mirrored the overall market with the leaders index declining early but recovering most of the early losses. The index closed down 1.20%, but near its highs of the day. Volume was lower than Thursday but still above average. The index also remains below its important 17dma, a sign of weakness, and the relative strength line of the index continues to weaken. The action yesterday was mostly caused by news out of Washington. This back and forth makes it harder to really judge the underlying strength of the market. The recovery yesterday was positive, but the action in many leading stocks that have paced the rally so far is worrisome. Many stocks that have been leaders all year are flashing sell signals, such as BABA and SQ. The Senate passed its version of the tax bill late last night and the news out of the investigations in Washington turned out to be not as negative as originally reported. The tech stocks continue to be the weakest part of the market in recent days trading and it would be encouraging if they could regain their strength. We could be seeing a rotation to new leadership as the New York averages take over from the Nasd averages, and this could hold the overall market up. The loss of leadership in the tech and Nasd related stocks could be a temporary shift that will correct itself or they could be signaling a top in the market and an end to the rally. If the market continues its strength on Monday it will be a good omen, but next week’s action will tell us a lot about the future direction of the market. Jerry