Distribution Picks Up

That was quite a ride. Despite the early three-day surge, Thursday and Friday erased all the gains and closed lower for the week. Once again the SP500 had a weekly range of more than 3%. This makes 5 out of the last 6 weeks with the market moving more than 3% from the high to the low. I don't know about you but that kind of roller coaster makes me plenty queasy.

SPX Weekly

Early in the week, especially Wednesday when the Federal Reserve announced its first interest rate increase in nearly a decade, it appeared new highs were the most likely scenario. But instead of upside follow through the Bulls got more of a "Red Wedding" than a king's welcome. The SP500 has now closed two consecutive weeks below a declining 20 WMA. While anything can happen in this market, the signal the price action is sending is not one with a bullish bias. The most likely course of action in my opinion is another test of the lower range near 1850. As is typical with range behavior the market should move from the higher bound to lower and back again. We could very well be seeing this play out. 

We take the longer timeframe with our trades and we were able to withstand the volatility this week. We had no changes to our Lg-Cap Portfolio. We remain Long $COST, $LMT, $GOOGL, $FB, $GE, LOW, $AIG, $UUP, Short $AXP, and 50% Cash. While the market gyrates wildly, leading stocks continue to maintain enough resiliency and cushion to hold above key supports. Because many of our holdings ran so much in November it seems likely that most could survive the market testing its Aug/Sept lows. Should things escalate beyond that however we would likely move back to a full cash position. Again these are problems we can face with as they come, for now we will deal with the market we have.

Weekly Charts Show Heavy Selling

Distribution signals are showing up in mass. This is an ominous sign going forward:


TWX

If you remember we took exit signals in $TWX Longs on 8/17 at $80 per share. While that was a discouraging stop to take, you can see why we stick to our support levels. Since that breakdown the stock has declined more than 20% and is now below major support. This chart has triggered a two-year Head/Shoulder Top and we will stay far away. This formation suggests prices could move to the $50 level, another 20% lower.

GS

 Goldman is sitting on a big level. This was the key resistance since the 2009 decline. It is now testing it as support for the fourth time since the breakout in mid 2014. With sell volume increasing and price below a declining 20 WMA, it appears this last test may be the one that breaks it. A failure to hold $170 sets up a potential move to the ~$120 area.

 AAPL

 We exited AAPL on 7/24 at $124.50. The stock has now declined 20% from our exit. Apple has been relatively weak for months and sellers continues to outpace buyers. A break of $105 on a weekly basis sets up a major breakdown. This is a widely loved and widely held stock. Most feel a substantial decline is not possible, to me this means its all the more possible.

APC

APC has a clear Head/Shoulder Top in motion and the stock has already moved 40% from the breakdown point. The measured target suggests we could see an ultimate move into the mid $20's before this is all said and done. There has also been heavy selling volume since the recent throwback attempt which shows major money moving away from the stock. There is also the possibility that this is working on a capitulation bottom, but we will need to see significant stability in prices before an end to this move can be considered buyable. 

 UNP

UNP has seen above average selling volume in 6 of the last 8 weeks and just recently moved to lower lows. For a prior market leader to be this weak shows that any stock can be taken down. Long-term this is a name I believe in highly so every tick lower means we will have an even better buying opportunity sometime in the future. 

UTX

A classic Double Top formation is in motion for UTX. It has successfully retested the $100 swing point and subsequently rolled back to the downside. This is a clean breakdown and the pattern suggests a move near $80-75. It should be noted selling volume has increased each of the last three weeks, this is not typically a bullish development. 

FOXA

FOXA traded in a very orderly range for nearly 18-months before failing support at $31. Once again we've seen a perfect throwback to the breakdown level and subsequent rollover. This is bearish price action. 

IP

 IP looks quite similar to FOXA above and this week closed at new multi-year lows. This is an easy avoid at this point. 

The takeaway from this is the market is showing classic signs of major selling, selling that also doesn't look like it's through yet. While there are still some hopeful trends out there, those continue to dwindle. The gameplan for me going forward is to remain flexible, hold lots of cash and let the market lead. I especially don't want anything to do with stocks already breaking to lower lows and seeing above average selling volume. Avoiding these downtrends has worked wonders for keeping us out of trouble so far in 2015 and I see no reason to think I can call the bottom now. 

It's always best to let these downtrends play themselves out and let them turn higher before we step in as buyers. It's important to heed this market warning and avoid the worst stocks. 

Outperformance isn't all the difficult if you simply avoid the worst stocks in the market. Seek strength, seek winners, and avoid the worst performers and you will see your returns grow. 

Thanks for reading 

-ZT