The major indexes declined to varying degrees at the end of last week. Yet, they all finished last Friday’s session in and around their 21-DMA/23-EMA. The distribution count currently stands at 3 days on the NASDAQ and 5 days on the S&P 500, which is not all that concerning. However, if last week’s heavy volume selling spills over into this week, the distribution count could easily rise to concerning levels.
As we discussed in the prior report, many of the market’s leading growth names have already broken out through their proper entry areas where risk/reward is optimal and became extended above their short-term moving averages. Therefore, the pullback we saw towards the end of last week wasn’t all that surprising within the context of the current environment.
Further selling from here would not be considered outside the realm of healthy and normal at this juncture, provided that the market and its leading stocks don’t start to take out key, long-term moving averages like their 50-DMA’s.
Remember, market corrections are the breeding ground for the next round of opportunities. So, continue to pay close attention to how rotation takes shape and focus on the strongest names in the strongest groups, with the best fundamentals. These are the stocks you ultimately want to be concentrated in.
Keep your emotions in check, stick to your rules and your plan and wait for the perfect setup and entry to develop, or do not trade. Remember, “buying right” is your best defense.
The NASDAQ fell sharply on heavy volume last Thursday and Friday, but halted its decline just slightly above its 21-DMA/23-EMA, which is a logical area for it to try to find support.
The small-cap Russell 2000 was notably divergent to the upside last Thursday, although it sold-off with the other major indexes on heavy volume last Friday and tested support at its 23-EMA.
The S&P 500 fell sharply on heavy volume last Thursday and Friday, but halted its decline just slightly above its 21-DMA/23-EMA, which is a logical area for it to try to find support.
The DOW fell sharply on heavy volume last Thursday and Friday, closed slightly below its 21-DMA/23-EMA, but well above its key 50-DMA, which is the next logical area of support.