Weekly Market Analysis: Profit Taking Or Correction?

After Friday's US Jobs Report, with the broad indices having a slow and steady decline from fear of higher interest rates in the near future, we question whether this reaction was profit taking or the change of trend, or as many say, a correction.

Let’s lead up to Friday's report for a second. Keep in mind the Dow/Nasdaq/ and S&P were up between 5-7% in the month of February alone, with the Nasdaq breaking the key technical/psychological 5000 level. If Friday never happened, and it did, and I will address further, traders would still be on the fence if that was the top.

What else could possibly happen to propel the market higher or even consolidate at best? Was this the ultimate buy the rumor and sell the news? From my experience and what our traders practice is that it is not uncommon for indices to pull back from major milestones. I will say this as I have said before, that one day does not make a reversal or change in trend and that comes from a contra-trading background.

The sign I am looking for now is more Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term and a tug of war if you will at these levels. What Friday told me is that, after the run we’ve had, major funds and institutions which are heavily invested in ETFs and Index Funds took profits slowly and steadily. Anytime after a big run, and a steady one with power, when there is a real fear of sooner than expected rising interest rates, a lot of the funds, etc. take profits. By what I’ve seen and been told by those I find credible, then Friday was understandable.

Let’s go to this morning, Monday before the open. This is where we stand and what happened. XOM upgraded at Goldman Sachs. General Motors (GM) announces a $5 billion share buyback. Whiting Petroleum (WLL) has put itself up for sale (up 12%). There was a major REIT deal with Simon Property bidding for rival mall owner Macerich…for $16 billion. Not forgetting that today is the launch of the AAPL Watch. By no means will the AAPL launch stop funds from selling due to rising rates but it may be an excuse to sell.

The point we are making at Tradeview is that Friday’s selloff will still have to work its way through the market with the Dow trying to test 18K again and the Nasdaq some 60 points off the 5,000 mark.

The way our traders are trading is not to avoid a major pitfall when “trading” at these levels, and that is to NEVER let trades turn into investments. When we have a position we are down in, if you don’t want to buy more at a lower level instead of waiting for it to come back to you, then sell it. Of course we look to buy into weakness and sell into strength but when a market turns and starts to drift lower, the positions can get away from you very easily. As said above, we would like some more volatility to leg into positions.

Aside from a market commentary or opinion(s) there has been tremendous opportunity in individual names.We have been trading the following actively and some can be seen on our webcasts at TVMarkets: LL…EYES…GENE…WTW…JOY…TSLA and GLD to name a few. All stocks with great RANGE, VOLUME and PRICE ACTION.