Leaders Index 12-17-18

The market was hit hard again today. After opening lower the major averages made a feeble attempt to rally but it didn’t last. Selling came in and the losses grew pretty large. While some late buying saw the major averages close off their absolute lows they ended close to their intraday trading lows. The losses were significant with the COMPQ and the NDX off by 2.27% and 2.22% respectively. The SPX fell 2.08%. Volume was a lot higher across the board and was above average on both exchanges. Leading stocks were hit hard as well with the leaders index falling 3.73% on the session. The index closed low in its trading range and broke below the critical 50dma. Quality growth stocks are considered broken when they break their 50dma’s on heavy volume. Volume on the index was much higher and well above average. The market continued its negative action in dramatic fashion today. It sold off hard on very heavy volume, showing that large institutional players were dumping stocks. Everything from high growth stocks to REITs were hit. There was no place to hide. The major averages went to new lows for the decline and took out the lows of the rally day, putting an official end to the recent follow through. In fact it was clear that the follow through had failed well before today. Virtually all stocks have broken down and breakouts are not working. The small cap averages are now officially in bear market territory as they have declined 20% from their highs. I suspect the major averages will not be far behind. If we are in a bear market, which I consider likely, all I can say is it’s about time. We have been in a very elongated cycle due to low interest rates and QE. The best gains are made in the first two years of a cyclical bull market and it has been a long time since we have been in that territory. Nothing would be better than to get a real clean out that would set up a new cyclical bull market next year. For the first time in many years it looks like we may get that. The Fed is meeting this week and most expect a rate hike. If they don’t hike there will probably be a rally. It could even produce a follow through like Powell’s speech did a couple of weeks ago. The fact of the matter is though that the vast majority of follow through days in a bear market are simply an opportunity to lose money. That is why we have the three confirming indicators. Playing around in a weak market can be very costly. A nice stretch at the beach would probably be a good idea right now.Jerry