One goal. One Step.: Weekend Review 05/11/12

A month ago when earnings season kicked off I opined whether or not this would be a lost season from an index perspective where little would be noticed. Considering the NASDAQ is less than 2% where it was from when the season kicked off, this hypothesis is playing out. What I wasn't expecting however, was the magnitude of some of the drops that occurred with many stocks moving into the bargain bin over night. Overall the NASDAQ is currently down 6% from its recent high.

Using a minimum volume filter of 100K+ volume over the past 3 sessions my Worden Common Stocks universe filters down from 5776 to 2721. Of these remaining stocks I've chosen to sort them by Price Percent Change 30 Days and Relative Strength against the NASDAQ since its peak.

During the past month there have been 651 stocks that have had double digit drops. 218 have had 20%+ drops. Notable drops during this time have been BODY down 46%, MAKO down 44%, GMCR down 42%, and FOSL down 40%.

Comparisons based upon relative strength to the NASDAQ, 1418 stocks are down 6%+ from the peak, over 50%. 1043 have had double digit draw downs and 429 have had draw downs of 20% or more.

The underlying vehicles that make up the indexes have been crashing and burning with frequency as of late but one wouldn't really notice this from the indexes which still look like a pristine country highway with a scenic overlook and historical landmark. But it's a windy road none-the-less and rubberneck too long and the side of the cliff looms unnervingly close.

Zooming out and looking at the Russell on a weekly chart it becomes clear that there is a range within a range with the current price action being tidily boxed by the larger range of a year ago. If not for the correction that began in July of last year it's almost as if nothing has happened.

Weekly Russell

Looking at the daily, the pattern has looked bearish for some period with price at the bottom of the range. When I look at the price action I'm reminded of being next to body of water on a rocky bank scanning for the perfect stone to skip across the water. The distance of the first few skips begins to narrow as the stone skims across the surface and with each bounce narrows further still until eventually it simply sinks to the bottom. This market continues in its resiliency as noted before so perhaps there's an embankment across the way that prevents the stone from sinking and simply places it within range of where it is now.

Skipping Stone

Scoping out the NASDAQ on a weekly basis what immediately stands out is the volatility compression as price traded in a very tight range. From range contraction comes range expansion so a move in either direction with follow through will be a significant move to pay attention to. Additionally volume over the past few weeks has been light relative to the previous few months but it is worth keying in on the increase in volume week over week as price had drifted downward.

NASDAQ 05/11/12

The $USHL5 currently looks neutral as it currently stands at -12. A new rally will need leadership to the upside so until this shows broader based support the assumption is that the market is still not healthy enough for upside continuation.

$USHL5 05/11/12

The Primary Trend Signal that I use has been squeezing and signaled bearish over the past week. Currently it has been mostly flat so any further erosion to the market should show up with in increase in the red line.