Since the beginning of 2014, the market has been choppy. As the pullback occurs more frequently and more swiftly, it can only mean one or two things. Either the market is simply consolidating the enormous gains from 2013 or the market is in the final phase of a multi-year up trend.
During the first quarter of 2014, the market was shifting away from those high beta tech stocks and biotech stocks, and moving toward the more stable high quality stocks found mostly in the DJ-30. This money shift is typical near the market top. It is usually coined as ‘flight to safety’. The selloff and short rallies (or the dead cat bounce) from the speculative stocks are designed to disguise the smart money liquidation process as they move their money away from the speculative to the more stable stocks.
The DJIA flirted with its all time high level last Wednesday and Thursday. On both days, it failed to close at a new all time high. On Friday, with the NFP job report release, the market opened higher, but it did not take long for the highflying tech stocks and the small cap stocks to retreat. As the selling ensue in the Nasdaq 100 and the Russell 2000, the DJIA and the SP500 join in on the selloff after their early morning rise. At the close, the DJIA finished with a loss of -159.84 points or -0.96%, the SP500 loss -23.68 or -1.25%, Nasdaq 100 loss -98.20 or -2.70%, and the Russell 2000 loss -27.72 or -2.35%. Even the DJT gave up ground with a loss of -112.43 or -1.46%. So where to?
In the video, we will look at some possible scenarios for the market. As this market continues to be choppy, one must exercise great caution on initiating new long positions. This is one of those times that one should be patient and operate under the premise of “I'm out of the market and wishing I was in” than “I’m in the market and wishing I was out”.
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Disclosure: Long SPY PUT.
