18 May Market Under Pressure 5/17/2016
Market Under Pressure
With 9 Distribution Days on the Nasdaq, 7 on the S&P and the market under pressure it sure seems as if were already in the decline of a bear market, the acceleration seems to be getting closer at least to me. As a Canslim trader I do not predict the market, however it is our job to act based on what we see happening. The only tools we have are the actions of the vast amount of activity in the market and we usually use the recent past to base those decisions on. Obviously they are not always correct, which is why we cut losses short. We also understand something paramount, that CASH IS A POSITION.
When I write these I like to point out things that many people may see and what I think is the Canslim take-away from those things, currently its about interest rake hikes fears, about leaders not leading, about oil not moving the market and China growth getting anemic again. So lets take these items and see how they could affect us.
In regards to interest rates its hard to know, we generally have seen the pattern of cuts allowing markets to rise and the market usually scares the FED when they don’t get what they want. Now that they have long stopped cutting they did one rate hike which was a non-event, they are seeking to take some more action and whether or not they do hike rates its not as guaranteed that the markets will react well. It is hard to say if a rate hike will cause the markets to tank, but it will definitely not help. Historically rate hikes aren’t seen as a positive.
When leaders dont lead bad things happen
Have you ever been on a construction site where there was no foreman, or in an office when the Manager is on vacation? Usually things get slower and sometimes devolve into something like the early years of high school as far as productivity goes. Not a good thing. In the markets we need growth stocks leading us up and showing us that institutions want to go in a direction, the old saying “sell in May and go away” is based on this same concept. When the bankers would leave for the summer and go on vacation, volume would dry up and not much money was made, historically that is a good rule and its all based on following leadership. So when there is a significant lack of leadership overall the market has a hard time choosing a direction, or at least choosing an upward direction.
is nearly to the “magic” number of 40 or 50 or 60, who knows what that number is as it changes for different companies, but prices are going up! So this is good overall however the markets dont seem to care too much, we get anemic rises in the market where on the way down the markets went up and down with the black gold. Currently it could care less, may be a good time to get some long term positions in the best gold stocks but thats about its significance at this point.
oh China. Cant live with them and cant nuke them, not that we want to. This could pose an issue for us, as the soon to be worlds largest economy they are going to have to find a new normal for markets and investors to feel comfortable about things. Markets like information and consistency, they dont like waves or unknowns so until we know the new normal in China institutions will take it easy in my opinion. But that could come at any time, the Shangai Index is a good indicator here, if you look at the index its back to the recent lows and could continue lower taking us with it.
So on the Bullish side we do have a few stocks that are “leading” the charge but not in breadth and if you look at a chart of any Index these days weve undercut 50 day moving averages sevaral times, making lower highs and volume is rising overall. Distribution is definitely here and with it comes losses and just how long those losses will remain is yet to be seen. So at this juncture with the Uptrend Under Pressure we need to do what we do best, keep losses small and make sure that we have an eye on our positions and not let that winner turn into a loser. Its ok to get out even or even with a small profit.
Keep in mind that the Nasdaq and the Russell led us up since 2009 and now neither index is healthy, the Russell couldnt get close to highs and the Nasdaq has one of the largest rounded tops ever with a companion head and shoulders pattern. And if that H&S pattern works out its going to be a brutal second half of the year and this Market Under Pressure will seem like good times.
With all that being said, the FED may not hike and China could do something great that could give us another follow through day and send us up to new highs on the Nasdaq.
Stay nimble…..yet cautious