MLR - PMP 3/11/15
Major averages tanked yesterday on higher volume, with the S&P 500 and DJIA definitively slicing through their respective 50dma's. Distribution days continue to pile up with 5 of the last 8 days adding at least one distribution day onto a major index.
While the put-call ratio spiked, this does not mean the market has found its low. The market often will fall for another few days or more before finding its low after the put-call spikes. Thus trying to use this secondary indicator as an entry point to buy is hazardous at best. Volatility spikes during such periods adding to the overall noise in the market, and added noise means added risk. It is far more reliable to examine the health of leading stocks as a good representation of the market's internals, thus the screens we run regularly help keep all of us on the right side of the markets when it comes to going long or short individual stocks.
As for market timing, the market tends to fall off mini cliffs with very little warning as it has done five times since December. Major averages tend to quickly fall around 4-5% during such periods which last from just a few to several days before sharply bouncing, thus the timing environment remains tricky. With the NASDAQ Composite off 2%. the S&P 500 off 3%, and heightened levels of noise, MDM will most likely move to the sidelines for now. Futures are trading up as of this writing.
Short-sale set-ups Workday (WDAY) and Splunk (SPLK) have continued moving lower with the indexes, although their initial downtrends began BEFORE the indexes actually topped. SPLK closed yesterday right at its 50-day moving average, which could set up a technical bounce, and we would view the 20-day moving average at 63.64 as an area of potential upside resistance on any bounce. WDAY has broken 5% below its 50-day moving average, bringing into play a possible downside target at the 76.35 mid-January low while the 50-day moving average at 84.53 can be viewed as an area of potential upside resistance. Weak rallies into the 50-day line could be viewed as potentially shortable. How the short side of the market develops from here depends on how things unfold following this first break off the peak, and for now that remains a fluid situation.
This information is provided by Virtue of Selfish Investing, LLC (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2016 Virtue of Selfish Investing, LLC. All rights reserved.