We Love Market Corrections

If we were farmers this selling would be like long due rain.

Our short positions were very much in agreement as the major indexes slipped on heavy volume.

Today was the S&P 500’s third Distribution day in six sessions. For the unfamiliar, a Distribution Day occurs when price falls for the day on volume heavier than the previous day. It gives an indication that institutional sellers are influencing the market – something we never want to be on the other side of.

So now we’re looking at the 50-day moving averages as potential support zones for the selling to halt.

It’s our opinion (at the moment) that these zones will be undercut given the abundance of heavy volume of late.

A strong indication that selling is letting up would be to see down days happen on lighter volume. We’re likely to stay Bears until that happens.

Looking into the guts of the market, we see at least half of the stocks in the S&P 100 (that’s a collection of some of the largest companies in the market) as poised to go lower.

On the contrary, a group of about a dozen are poised for shallow pullbacks as they cling to strong northerly trending 20-day moving averages.

Of the handful of the session’s gainers Drug stocks like Pfizer (PFE) and Merck (MRK) stood out – possibly as defensive money shifts into them.

We love market corrections for their ability to weed out the strong from week. The stocks least weathered in this period will be worth keeping an eye on for potential buys when our bias returns there.