Monday, January 27, 2014

A Significant Sign of Weakness- Price/Volume Heat Map for Jan 24

Without a doubt, Friday's trading was a distribution day, as demand was essentially non-existent. This probably means you should watch for a bounce, which this morning's futures are indicating. However, watch the quality of this bounce, as Friday's trading action was telling in many respects.

First, the market came off by more than 2 percentage points, a large loss for the market as whole, and prices breached the 50 day moving avergae. More telling was the volume levels on the decline, as volumes not only accelerated on the day, but accelerated heading into the close and began in earnest after 1 p.m. on the trading day. This is telling as it indicates that the institutions were selling in to weakness. You probably do not need to look, but the price/volume heat fully reflects the day's weakness.

Week Ending Jan. 24- Significant Down Week

For the latest ended week, the S&P 500 was off by about 260 basis points, entirely due to the weakness in Thursday and Friday's trading. The sector groups were off across the board with a 20 basis point decline in utilities being the best performer. Utilities have been outperforming in the latest decline as treasuries bonds have been rallying hard. For example, go take a look at either (both) the TLT or the TBT. If you remember, I had turned positive on the treasury bonds roughly a month or two ago. Although I would expect the rally to continue in the medium term, I also expect a consolidation soon.

Looking at the price/volume heat map, demand was weak mainly on the increased supply in the last two trading days of the week.

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