Just Par For The Course
Many traders
know that the typical behavior in a
bear trend is an up open and a down close.
We got exactly that Wednesday.
In fact if you look at a 5-minute bar
chart of Wednesday’s Nasdaq futures, you’ll see a fairly symmetrical
"frown."
At this juncture, the best thing that
could happen for long-side-only intermediate players would be an acceleration of
volume, resulting in a sharp downdraft and culminating in a selling climax over
a few days.
This assumes that you’re in a 100%
cash position, which is where you should be if you’re a stalker of the
speculative growth stock leaders.
Among the sacred cows, it was the
third distribution day in the last six for EMC
(
EMC |
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PowerRating).
Intel
(
INTC |
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PowerRating), meanwhile, was
distributed for the seventh time in its last 13 outings.
Of the others, Sun
(
SUNW |
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PowerRating) and
Nortel
(
NT |
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PowerRating) hung in okay.
Cisco
(
CSCO |
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PowerRating) also lost
ground…but I’m not according it as much attention as the above names, seeing
as how it topped on March 27…i.e. its sacredness is no longer a given and,
therefore, isn’t a good barometer of institutional sentiment at
the margin.
In Tuesday’s
column, I pointed out the importance of watching volume on a rally attempt
following a sell-off.
Specifically, I used the Naz as an
example of an index that repeatedly tried to angle higher on diminishing volume.
Keeping an eye out for this
"wedging" activity would have made you view one of the leaders of the
recent advance, Corning
(
GLW |
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PowerRating), with suspicion.
Looking at a chart of Corning, the
first sign of questionable activity was the two consecutive distribution days of
July 5 and 6.
Two days later, on July 10, we saw a
third distribution day.
We then saw four straight days of
wedging activity similar to what I pointed out in Tuesday’s column. This was yet
another warning signal.
It then gaps and breaks out to a new
high on an intraday basis, and on strong volume.
At this point, you’re watching to see
if there’s any follow-through, which there isn’t for the next three days. And
then GLW breaks out again, but this time on anemic volume.
The anemic volume tells you
something’s wrong with this picture.
The following day the stock gaps lower
and loses 12% on extreme volume.
We then see two more days of wedging
action, another warning sign.
And then two more days of
distribution.
The moral here is to be aware of
wedging activity following a sell-off in either a stock or index.