The market saw some of the heaviest selling of 2012, but was able to pare losses and close well off the lows. We did close below the 10-day moving average barely, which could potentially signal a short-term composure change. Tomorrow’s session will be key.
It’s amusing, and a testament to the underlying strength in this market, that we are talking about rare weakness on a day when the Dow is down 0.11%. The Nasdaq was closed down more, 0.86%, but the selling was still a far cry from some of the extreme volatility we saw late last year.
The main reason for weakness in the Nasdaq was Apple (AAPL). The most valuable company in the world doesn’t always pull-back, but when it does, it chooses to do so violently. At around 11am, the stock fell violently, dropping 3% in less than 10 minutes. It brought back memories of the flash crash, although not quite THAT violent. AAPL finished the day down 2.20%.
Individual Longs and shorts continue to work but it seems like pressing shorts never works lately and adding for momentum longs is an art. While the S&P closed just below it, some groups are still riding the 10day (and some the 20day). The S&P almost touched the 20day at 1358 for the first time since December 21, and then bounced pretty hard. The low of the day was 1359.
I guess we will need to see if we can develop a new floor to use as pivot to trade against. Whenever the trade feels like it’s changing, it stays the same. The last two times we have closed the 10-day MA, we have bounced back quickly. So we will judge the next few sessions closely.
I sold some winners today, and got stopped out of some trailers that are a lot higher from my buy prices. Sometimes being too tight/risk averse can go against you. As you can see by my positions. I’m the lightest I’ve been since December 20th. I will use a more active approach until I get more data. Some stocks will be buyable for new swings in the coming days once we see some action in the next few sessions.
Know your time frame and risk. Macro investors don’t have anything to worry about as the gradual trend and 50day will be important for them, but that is a long way off. That’s why short term momentum traders are a bit antsy up here.
Disclosures: Scott Redler is long SPY, OIH, JPM. Short DIA, QQQ. (Traded today but currently flat- ZNGA, SIMG, MS, MBI, LNKD, IBM, CZR, AIG, AAPL.