June Nervous Selling

bp stock dropsTuesday's trading trends brought memories back from late 2008 days. In fact, trading trends for the past few weeks have been very reminiscent of the uncertainty days of 2008 in general. To me, it is clear that the fast pacing, bullish rally has temporarily come to a close as it has been very difficult to gain momentum on the buy side. Even on days where strong data is released, selling continues to prevail. Today, was another wild swing day, which resulted in the market having an aggressive sell off to close the day and ultimately close the Dow down 112 points.

So why the selling now? We saw from recent months that the market has barrelled through uncertain times with flying colors. There are a couple answers to the questions. First of all, we've seen a return of volume. For most of the first quarter, volume levels remained critically low. Many of the institutions and big players remained sidelined and played the market very "safely" as to not get blindsided. Lately, we have seen a very big gain in average volume, especially on days of strong selling. As the volume continues to increase, it will be harder for market movers to manipulate indexes to move in the direction they want.

Secondly, we are now reaching global pressures. The US was center of most problems that began in 2007. Thus, it us the most. Although global pressures also existed, the US seemed to be experiencing it the worst. As we saw seeds of a bottom, many jumped back on the US bandwagon, trying to take advantage of those early reversal gains (which many did!). However, now global pressures are taking over headlines and there is a lot of speculation that those pressures can and will directly affect the US. Whatever the reason may be, the charts are looking quite optimal for short positions.

Manufacturing and select tech companies seem to be the only reasonably "bright spots" in the market at this point. Oil is taking a beating thanks to the BP disaster in the Gulf and residential builders are hurting from more and more reports of consumers selecting not to pay their home mortgages anymore. Ultimately, we cannot anticipate just how great effect these pressures will have on the US economy, but we can estimate it will be great. For many, taking a pretty good profit from the past year's gains is good enough and cash and bonds are looking better than ever. Today's inability to hold in the green shows that even with a new month and a new week, new beginnings are getting harder to make. For me, I am out of almost all long positions, and have been enjoying gains from some shorts and the VXX ETN. I expect continuing rebound rallies to occur frequently, but I do see a strong downward trend at this point. Happy Trading.

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