The picture really changed late last week while I was away. The market sold off as trade tariffs went into effect and really cracked today when China retaliated. The major averages opened lower and spent the rest of the session selling off. There was no buying coming in late as we have seen lately. This is a negative sign. The Nasd averages were hit the hardest with the COMPQ and the NDX falling 3.39% and 3.46% respectively. The SPX lost 2.41%. The greatest damage was done in the semiconductors with the SOX declining 4.70%. All the major averages finished near the bottom of their intraday trading ranges, a sign of a lack of interest as prices fell. Volume was higher. It was up by 7.97% on the New York and .46% on the Nasd, according to Esignal. This shows distribution in all the major averages. Leading stocks took real hits today with the leaders index declining 4.33% and closing low in its trading range. After selling off last week the index broke below its 50dma on heavy volume today. It is usually the sign of a broken leading stock when it crashes below the important 50dma on heavy volume. Volume on the index was much higher and well above average. This was distribution in quality growth stocks. The picture darkened quite a bit in the last few days. Major support was broken as the INDU and the NYA have broken below their 200dma’s. The Nasd averages and the SPX broke below their 50dma’s. The action in both the leading stocks and the major averages says that the rally that began the trading session after Christmas is likely over and we are in some kind of a market decline. It is too early to tell how bad it will be, but the recent rally to new highs in the major averages is looking more and more like a fake out . If the market goes back and tests the lows of late last year it would indicate that we are still in a bear market that began in the third quarter of last year. We are in a difficult position now as news stories are dominating the market. If there is good news on the trade front there would be a significant rally. The most important thing is always to protect the downside. If you want to survive in this business long term that must always be the most important factor. If you have to big a drawdown it can be all over. Right now the downside risk is very great and protecting yourself is critical. Jerry
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