Little Firm Evidence
Is this market showing its true colors or is this just a
brief downdraft? After all of the
confusing action we have see over the past few weeks, there has been very
little firm evidence pointing one way or another.
The reason for this
is that markets can
change on a dime and most investors cannot. We saw solid distribution through the end of October, only to have a
follow-through day occur right afterwards. If one was trying to trade on this, it would be whipsaw city. There is one lesson to pull from this and use moving forward:
Whenever
we find ourselves doubting our decisions or the information the market is
showing us, lean towards preserving hard-earned capital until the smoke
clears. When things fall into
place, then it will be time to go after opportunities.
This falls in line with the quote: “Live to fight (trade) another
day.â€
As I punch out this column at
3:00 PM EST, I am noticing that the indices are moving to their worst levels of the day
but volume is lighter than yesterday. This
will be an important aspect of any pullback to watch and base decisions on. If volume is light when the
market pulls back, that indicates healthy action as the indices digest their
gains. If volume comes in heavy,
we will probably see further selling. It
will also be important to follow some of the recent leaders during the
pullback. Right now a few that I
have kept an eye on are not acting very well.
Forest Labs
(
FRX |
Quote |
Chart |
News |
PowerRating) looks like it may close with two
tails…never a good sign.
Recent standout Teva
Pharmaceuticals
(
TEVA |
Quote |
Chart |
News |
PowerRating) tested the water around its 50-day on an almost $8
decline today. It has been trying
to recover ever since. Remember
Anthem
(
ATH |
Quote |
Chart |
News |
PowerRating) and Coventry
(
CVH |
Quote |
Chart |
News |
PowerRating)? They tried to do the same
(see below).
The lack of successful breakouts and leadership brings me
to my next point on the frailty of this rally. As I mentioned in
this column a week ago, one of two things will
always
happen when a market rallies: successful leaders breaking out and moving
higher or a lack of setups resulting in a failed rally, which appears to be the
case in question.
Hang onto your cash and keep a close eye on the
indices’ price and volume action on a daily basis. Take some time this weekend to go through fundamentally sound companies
and see what their chart patterns look like. If you’re too busy for this, I’ll be back next Tuesday with my
thoughts on the subject.
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