Leaders Index 1-16-18

The market suffered a nasty reversal today. After opening with strong gains it looked like the market would continue the rally that began with the new year. About a half hour into trading the major averages topped out and began selling off. Shortly after that news came out that the Democrats in Congress would not agree to a budget deal without DACA being in it. This raised significantly the risk of a government shutdown at the end of the week. The reversal was pretty dramatic. After all the major averages made new all-time highs the selling began and they all declined for the rest of the session. The COMPQ finished with a loss of .51% while the SPX fell .35%. All the major averages closed at their intraday trading lows, so there was little buying support as prices fell. Volume rose across the board and was above average on both exchanges. This shows that large institutional players were doing some selling today. It was also enough to produce fresh distribution days on all the major averages. Leading stocks had a bad session as well. They started off strong and hit a wave of selling. The leaders index set a new high early and then reversed to close near its intraday lows with a loss of 2.83%. The index closed below its short term 9dma, but never touched the 17dma. The large red candle sticks out like a sore thumb and it was an outside reversal day, a negative sign. Volume was also very high and well above average. It was however lower than Friday’s FB driven volume. The kind of reversal we saw today can lead to a change of trend, weather short term or longer term. The action looks ugly on the charts. It may well have been caused by news from Washington, but that may just have been an excuse to sell. If a deal is reached it could produce a positive reaction. After the rally that began with the first trading session of the year some sort of a consolidation or small correction is to be expected, but it would have been better if it were a little more constructive. I would expect that today’s action signals at least a short term top of the recent advance. We will have to watch and see if it turns into something more. Today action was negative, but not enough to say the rally is over. A solid rally back would be encouraging ,but we are likely to see some sloppy action until a budget deal is worked out. The overall picture is still positive, but at least some short term negative trading is likely. Jerry