Pardon me, but there were some mixed signals being sent by the market this week. The Dow is at two-year highs, but I don’t think the indices are telling the complete story right now. There is a lot of technical damage to charts and troubling noises coming from under the hood. To me, this is an example of clues you need to time the market as an active trader. You can’t chase excitement all the time.
Apple Inc. (AAPL) opened around 52 week highs Wednesday after a stellar earnings report seemed to take precedent over Steve Jobs’ most recent medical leave. But the stock gave you a sell signal when it didn’t hold $348.50. Now it’s 327, 20 points lower.
Google, Inc. (GOOG) opened near highs too this morning after their strong earnings report, but when the stock couldn’t hold $640, that was the sell signal. GOOG closed at $613.
When you see investors aggressively selling strong earnings reports in leading stocks, you know the market is not healthy. The tech momentum trade definitely looks to be over for the time being, as many of these charts will need to time to repair themselves technically.
Many of the sectors that led the most recent leg of this rally up got hit the hardest over the last few days, another troubling sign. Agricultural stocks got hit hard after Cargill announced plans to sell its 64% stake in The Mosaic Company (MOS), and had a tough time bouncing today.
The cloud computing sector had its second major debacle in four months after F5 Networks, Inc. (FFIV) lowered guidance for the second quarter. Last time on October 6th it was a buying opportunity, but this time around the jury’s still out.
The bottom line is, we have been spoiled by the one way market action since September, and complacent investors were reminded this week how quickly the bottom can fall out of this market. While the indices remain intact, the manic action forecasts future weakness and volatility. The trade will change all year, and the type of trade will change. Right now active traders should be out of portfolio mode, which worked nearly flawlessly since September, and into range trading, hit and run mode. Only when we get a decent pull-back into support should you look for macro entries.
*DISCLOSURE: Long AAPL; Short SPY
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