Markets Forfeit Gains on Icahn Comment?

Great day right up until 2:30 pm when some program selling had to kick in as the indexes dropped quickly. The selling lasted until 3:20pm and then moved sideways. If that type of activity persist the buyers will abandon the cause and the short side of the market will accelerate. There are plenty of traders who would love for the short side to exert itself somewhat going forward. Even Carl Icahn got in on the act today stating he thought stocks could see a big downside move. You have to love those comments in the media… I am sure there is no shortage of comments to go with the statement by news analyst. Pump and dump, let’s blame it all on Carl!

The consensus at the AAII national conference this past weekend was a correction for stocks. The question is when and what will the catalyst be for stocks? There in lies the challenge and the speculation for stocks. We can all pontificate about the downside and why… but the sellers will have to take control short term. Until that happens we have to go with the trend.

Tomorrow promises to be an interesting day in follow up to the afternoon selling on Monday. Do we continue higher? Do we find more selling? Patience is that dirty word we all hate, but applies to where we are currently. Don’t fight the tape and equally don’t fight the Fed.

State of the Market:

The trend of the market remain on the upside both short term and long term. The micro term (13 weeks or less) is where investors are focused currently. Why? The media and analyst feeding them are concerned about the current valuation of the market overall versus buyers appetite for risk. The VIX index shows the worry factor doesn’t even exist at this point. We have all voiced our concerns about the movement of the market near term, but we have to let it play out versus speculating on direction.

Index and Sector Watch:

Dow Industrial Index (DIA) – Broke 16,000 intraday, but the late day selling took the index lower to close up 13 points. Is this the reversal day and the downside is going to take root? I am not sure I would be willing to place any bets on that scenario, but I am willing to watch to see if tomorrow follows through on the selling.

S&P 500 Index (SPY) – Hit new high on Friday and was inching higher today when the bottom fell out and index closed down 0.3%. The intraday woes of the Icahn comments or short selling sent the index tumbling into negative territory. There is plenty to entertain as we head into tomorrow’s trading day. Stops in place on trade and manage your downside risk in longer term holdings.

NASDAQ Index (QQQ) –  The index was the biggest loser on Monday down 1%. Internet, large cap and social media stocks were the biggest contributor to the late day selling. QQQ closed on the 10 DMA and we will see how it unfolds tomorrow. All the talk of selling is weighing on the daily activity. Watch and be aware of the exits and opportunities in this market.

Russell 2000 Small Cap Index (IWM) –  My question… ‘if the previous leader is not responding on the move higher, is there a pullback on the horizon?’ We need to see a move above the $111.50 mark for the sector to rejoin the upside leadership. Give it room, but watch to see how this plays out going forward.

Sectors of Interest:

Technology (XLK) tumbled 0.4% on the day, but the parts were worse than the whole. Semiconductors (SOXX) were down 0.9%, Networking (IGN) was down 1%, software off 0.8% and Internet down 1.5%. The move in the internet space was led by Facebook (FB) down 6.4% as the selling accelerated following the attempted bounce from last week. Large cap stocks were under pressure most of the day.

Gold (GLD) was off 1.1% pushing the metal back towards the previous low. GLL (2X short gold) was up and moving back towards the previous high. Looking for the metal to continue the downside movement and watch the support on GLD at $121.80.

China (FXI) is on a run following the government proposed changes and announcements that the economy is back on the path to growth. If they do follow through on the reforms, they will not have immediate impact on stocks and the economic data versus the bank liquidity issues continue to be opposing views. Trade opportunity with volatility and risk, nothing more at this point.

Energy (XLE) oil prices are on the decline after two day bounce, but there is nothing new in the sector. Oil services and exploration have shown strength, refineries bounced on the uptick in gasoline prices and natural gas bounced off the lows. Overall the index is stalled in an attempt to break higher, and still looking for a move above the $87.60 level.

Emerging Markets (EEM) – Reversal last week off the recent test of support near $40.25. The last three days have been positive as interest rates have declined and the rumblings about no stimulus cuts in December. This is a trade on the upside move, nothing more at this point.

Treasury Bonds (TLT) – Last week the yields started to move lower and they continued today. Today’s move was more defensive than Fed driven. The worries about the markets moving lower is rattling stock investors which in turn pushes move towards Treasury bonds. TLT was up 0.6% on the day.

What to Watch Tomorrow:

Trading Notes tomorrow morning to set the tone for the trading day. Don’t get them? Send and email to don@jimsnotes.com to find out how to try them free.