Market Alert - The Close

Good grief, another session that started higher but flipped negative. More than that, even though it was another session of gains that could not hold, the index patterns are still holding. Thus, you have indices that cannot hold a gain, but also indices that are not breaking down. It is an ongoing process of showing inability to sustain a positive reaction to good news but also not breaking down. The trend is sideways for now, and in that case you can sell premium on moves higher, i.e. sell naked calls, and then buy them back on the drop. That is one of the riskiest trades and requires a lot of margin collateral; thus many opt not to do it because the risk is high and the reward is lower due to the margin requirements.

Thus, Monday started with solid gains on the indices pre-market, but we noted they were fading even as the open approached and questioned if the move would hold. Stocks opened and then spent the day frittering away the gains and indeed flipping substantially negative by the close.

SP500 -21.86, -0.82%
NASDAQ -53.53, -0.75%
DJ30 -148.04, -0.61%
SP400 -1.05%
RUTX -0.92%
SOX -1.09%
NASDAQ 100 -0.76%

VOLUME: NYSE +38%, spiking above average, aided by moves from MCD that saw a massive volume spike. NASDAQ -3%, fading a bit lower below average. At least volume did not spike on the selling.

ADVANCE/DECLINE: NYSE -1.7:1, NASDAQ -2:1. Still more coming out of NASDAQ.

Even with still very decent economic news, the indices cannot hold gains. Upside moves are used to reallocate funds to other areas, e.g. oil, drugs/healthcare versus a wholesale leaving of the market. That is helping keep the indices in their lateral moves versus just suffering a selloff.

True, there are people leaving the market. The retail investor activity has dropped sharply of late as many online brokerages are noting. Grinding out the participants indeed.

Overall volume remains low though there are pockets of higher trade, some on the recent downside in NASDAQ, but also on upside sessions as well. NYSE trade is notably lower, typically below average even on the stronger volume sessions. Monday was an outlier with volume jumping well above average on NYSE.

Low volume suggests basing action and with the lateral moves in the indices that suggests they are attempting to base. Back and forth quite a bit on the earnings and news but holding their patterns. Again, that suggests some basing ongoing as stocks hold patterns/support even while market participation shrinks.

Again, money is being allocated to other sectors, e.g. oil. Money moving is a decent signal that a crash is not coming, at least not soon. Therefore we are going to keep looking at those sectors but also watch for downside plays as money leaves areas.

AAPL's earnings Tuesday, the FOMC rate decision Wednesday, and the jobs report Friday could add some spice and watch to see if that impacts the lateral moves.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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