The market started off strong again, but couldn’t hold the gains. After opening with solid gains the major averages worked their way higher nicely. After the Fed’s minutes came out the rally accelerated for a while, then the selling came in. With an hour and a half left the major averages started selling off and continued lower into the close. The COMPQ finished with a loss of .22% while the SPX fell .55%. All the major averages closed at their intraday trading lows, a negative sign that there was consistent selling into the close. Volume was higher across the board. This was enough to produce a fresh distribution day on all the major averages. That combined with the stalling distribution on the SPX last Friday is a bad sign. Leading stocks followed the overall market again with the leaders index declining .12% on the day. The index closed near the bottom of its trading range as quality growth stocks faced real selling pressure. Volume on the leaders index was higher than yesterday and slightly above average. This shows that there was selling pressure, but the loss in the index was too small to qualify as distribution. It is looking more and more like the follow through that we had last week is in trouble. We have now had two reversal days in a row where the market opened higher and closed weak. Strong opens and weak closes are a sign of a market that is having trouble advancing. Weather it is rising interest rates or a stronger economy, the action of the market since the follow through has not been encouraging. The New York averages rallied back above the critical 50dma after the big sell off we had in early February, but are now back below this now resistance level. This is very negative. The fact that only one of the three indicators confirmed this follow through means that the chances of it being successful were low to begin with. The stalling distribution day last Friday that was within four days of the follow through also raises concerns. Distribution that early can kill a rally attempt. It looks like the odds that this follow through will fail are getting higher by the day. Right now it doesn’t look good and it will likely take a rally by the major averages into new high ground on solid volume to improve the picture. Jerry
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