Gains Evaporate as Stocks Notch an Outside Distribution Day

May 20, 2009

by Market Speculator

Kicking off the morning stocks rose as it appeared buying interest was beginning to pick up. However, the most recent FOMC meeting minutes were looming; set to be released at 2pm EST. Stocks were steadily sold off into the 2pm EST release of the minutes as volume was running hot as it was all morning long. Traders cheered the FOMC meeting minutes initially but stocks hit a road block and selling spread like wild fire on the street. Closing out the day, stocks notched a terrible reversal distribution day and an outside distribution day at that. Although the Dow and NASDAQ currently have 4 distribution days the action in leading stocks is what is more troubling. Today was not a very pretty day leaving a hefty blemish on this move off the March lows.

What is troubling to me is the fact that the IBD 100 fell more than 1% on greater volume. Leading stocks during normal uptrends would not have pulled back further than the major indexes and certainly not on higher volume. We have so few true leaders that it has begun to push me to a more neutral position from a a more bullish scenerio. There are still stocks coming off their lows and making some nice gains but we need quality growth stocks to lead this market not junk-of-the-bottom stocks. I have pointed out that it can take months to form leadership, much like the 1938 market were leadership emerged 3 months after the new uptrend was established. We still have the ability to see some leaders coming into the fray but at this time the window of opportunity is beginning to shut.

Junk-of-the-bottom stocks have been enjoying some pretty nice gains. Our platinum members are enjoying these gains as these are the new types of longs offered up to our Platinum Members. These moves are happening with strong volume moves confirming the bottom has been set. They are displaying MAX GREEN BOP on their charts showing there is some life to this market. We have to be cognisant of the fact that when there are gains to be had in these stocks we take advantage of them and in this environment gains can be whisked away rather quickly.

I personally need IBD quality stocks to lead and unfortunately there isn’t enough leadership out there. One area is Telecom where I do see some life. There are a few stocks in this space that are certainly the leaders of their industry. One thing to keep in mind is the level of information and content being generated every day by users on the internet. It grows exponentially and the internet needs to keep ahead of this pace. Therefore, with bandwidth needing to be expanded there is only a few ways this can be accomplished. Telecom companies who are working to help keep pace will be the ones who are going to be leaders. Let’s not forget those companies who assist getting the end user the ability to view, create, and update content and information.

Tomorrow I will cover another area where I believe we’ll see signficant growth. It stems from the fact that by simply printing paper/fiat currency this asset class will benefit greatly. I do want to remind you of the Zimbabwe case where the corrupt and insane leaders simply printed “notes” to help save their country. Dollars will always float to the vehicle where it will produce the best return. Therefore, as the money supply, now being created exponentially is printed stocks are an obvious choice to keep up with the pace of inflation of the money supply. Expect the cost of everything to rise while your real income declines. History has shown this to fail every time it has been done before there is no reason it will not end the same. As all things, this is certainly subject to “CHANGE.”

For now, our members are enjoying nice gains in stocks and if this market decides to head in either direction we’ll be on top of it.

Posted by MarketSpeculator | Filed Under Market Commentary