Been feeling a little under the weather lately, but I'm back in the saddle and it's GREAT to be back. So, let's dive headfirst into this week's article!
As most already know, I typically keep my general commentary reserved for members of The Trend Rider (my options trading service). But today I'll share a less-detailed version of what I've been telling members of TTR, which is that the odds strongly favor a continued stock market sell-off -- BIG TIME.
To most stock market "civilians," it will appear that the Dow Jones Industrial Average (Symbol: INDU), with all the volatility over the last five trading sessions, has only lost about 100 points.
Big deal, right?
But if you're in-the-know, then you understand that the amount of market value the major indices have lost isn't what's important here.
What's important are the KEY PRICE POINTS (i.e., support levels) that so many stocks have broken through!
Stocks on Sale, but Who's Buying?
Last week, 11% of all stocks (net) on the New York Stock Exchange broke through support levels, putting them on sell signals.
I'll make the importance of this event very simple.
All you have to understand is that, if a stock declines and breaks through a key level, the stock is much more likely to continue lower (because the big buyers who were supporting the price of the stock are no longer there, or the sellers had more stock for sale than buyers had to buy).
Let's say XYZ stock is trading at $50.50 and the key support level is at $50. If XYZ stock closes at $49.25 (75 cents below the support level), then it is MUCH more likely to continue lower than to regain enough demand to reverse and continue its uptrend.
Even though the stock only declined by $1.25 (or 2.4%), the whole picture changed dramatically!
So what I'm telling you today is this: After being very overbought (where typically most of the money that institutions had with which to buy stock, has already been used for buying stocks -- and the demand side has used all its "ammo," or is "fully invested"), the market has now reversed lower.
Importance?
As they take profits, when everyone is "fully invested," there isn't much money to step in and buy more.
(New) Buyers Beware
The selling has begun and we know that 11% (net) of NYSE stocks broke through those key support levels just like the "XYZ stock" example above. The market only moved slightly lower, sure, but the real picture is stocks are poised to drop.
Then there is the fundamental picture that my partner Ron Ianieri explained in his Tycoon Report article on Oct. 26. You can read that article here. (But finish this one first!)
As I reminded TTR members yesterday...
Out of the 46 Sector Hunter Broad Sectors, only seven were showing institutional buying.
