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Stocks continued to gain directional momentum on Thursday, as
mixed economic data provided little to nothing for the bulls to
hold on to.
Dow Jones Industrial Average
) and other major indices dropped more than 1.5% as sellers took
control of the tape on increasing volume. The increase in volume is
troubling as the "light volume trade" is now giving way to a
consensus action as higher volume indicates that the bandwagon
sellers are now hopping into the trend. Market breadth is on the
decline as all 10 of the market's sectors finished the day in the
There's no way to mask it: The market has deteriorated from a
relatively strong technical picture to a near dire situation over
four trading days. The SPX closed below its much-watched 200-day
moving average, inducing an increase in selling volume as the
institutional investors became more engaged in the trend
Now, the relative strength leading Nasdaq 100 Index, represented
PowerShares QQQ Trust
) shares, is threatening to follow suit as its 200-day moving
average is only 20 cents below Thursday's close.
The QQQQ shares will dictate the next 3%-5% move in the market
today. Mixed earnings results after the close from
Research In Motion Limited
) won't help to provide the direction, leaving everything to the
technicals. As the Nasdaq 100 has been a leading index on the
rallies, short-term traders should look to cover their portfolios
with additional put protection today should the QQQQ shares break
below their 200-day trendline.
In a similar situation is the
iShares Russell 2000 Index
), which came to rest within a few cents of its 200-day moving
average and the lower "band" of its regression channels drawn from
the 2009 bottoms. What does this mean? Once again, a support level
that must hold on today's trading in order to keep any sense of a
tradable intermediate-term bullish trend.
We recommended that options traders buy short-term
, a move which has already paid some returns after today's action.
For now, we would recommend that you hold that put exposure UNLESS
we see a strong move off of the support levels indicated on the
QQQQ and IWM shares.
Failure to hold these marks will see the market spiral another
2%-5% lower over the next 3-5 trading days. Traders should also
beware that any support from these technical trends may be
short-lived. As tedious as it may be, a market environment like
this dictates that traders and investors stay in tune with the
Equally important is the ability to remain nimble due to the
fact that this market can indeed turn on a dime, something that
we've witnessed in less than a week's trading. We'll keep you up
with the trend and identify the next opportunity to close shorts
and start adding stocks and calls to your portfolio.
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