Some Tells From Monday

Monday’s stock market action showed me a few things….

1) After 4 out of 5 down days last week, I was surprised to see the market could not even bounce.

2) The rally we had in the morning came on light volume, a sign that institutions are still not participating in this market.

3) The put-to-call ratio was fairly low, showing that investors were jumping back into calls as if suddenly everything was all right.

4) I noticed many people “nibbling” on stocks Monday. That is no problem if you are a long-term investor, but if you are a swing trader, I don’t feel we will see any SUSTAINED upside over the next 3-6 weeks.

5) Keep in mind that breakouts have a low probability of working during corrective markets.

6) $AAPL announced that its new iPhone 4 model sold more than 1.7 million units in the first three days. News like that normally shoots the stock up, however the reaction seemed muted as if no one really cares.

7) Three stocks that I follow received upgrades on Monday morning and all three closed down for the day. Again, no one cares.

8) I was surprised to see the number of Bulls increase and the Bears decrease in last week’s Investors Intelligence data, especially after such a bad week!

9) I noticed many people citing the “oversold” conditions as a reason for a rally. Keep in mind that oversold markets can remain oversold for a while. Just go back and look at the fall of 2008.

I am not trying to be negative. I am simply trying to point out what the market is telling us. Unfortunately for now, there seems to be more negatives than positives. The most important observation from last week was that the bids just disappeared! It felt as if there was no sustained underlying support to the market all week.

My best advice is to raise some cash and wait patiently for a better environment. The good news is that many stocks are holding up well and they could possibly explode to the upside when conditions improve. The key right now is patience and discipline. Protect your capital for a healthier market!

Follow me on Twitter @jfahmy

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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