Beware of DOW

I rarely speak of the DOW because I rarely think of the DOW. It doesn't really exist to me because none of its components are in my trading universe. Ignoring it however is a mistake in my analysis because it is the granddaddy of all indexes. It is the one every John Doe Retail listening to the nightly news will hear about hitting a new all time high today. It is the index that will have them going to sleep tonight believing all is well in the market, but it's also the index that informs when something isn't quite right.

I consider a leading DOW as an indicator that my trading universe is lagging and since it is compromised mostly of small cap and momentum stocks it suggest that in the least it is currently a risk off environment or a period of distribution. With only 30 components a smaller amount of effort is required to misdirect the eye by pushing the needle and nudging the DOW to new highs while masking the relative weakness in the Russell and Nasdaq.

$INDU:$RUT

$INDU:$COMPQ

These are the times to be more alert and vigilant to a potential change of character in the market. A number of high fliers have been having some extreme volume sell-offs after earnings and many others are showing wide ranging intraday price movements indicating increased volatility which is a sign of distribution. Today TSLA, QUAD, MELI, and JCOM got to visit the woodshed and after hours it looks like SCTY, NDLS, and WFM will be joining them tomorrow morning. At this juncture market risk is beginning to increase and playing with this awareness is prudent speculation.

All is not foreboding however, as the leadership of tomorrow is taking shape today. Two that have been entered into my watch list are ECOM, and VOYA.

ECOM

VOYA