Today was another day of rather peculiar action. All major indices finished just slightly in the red and while Gold and Biotechs showed some life, there was no defined leadership among the major sectors. Breadth was very poor and volume was about average. One very disturbing note was that the small cap index and many of the recent momentum favorites took a beating today as bids disappeared. The momentum buyers stepped aside and many thinly traded stocks sunk into the abyss.  

We aren’t quite sure what to make of today’s strange activity. Technically we remain set up well, however should the major indexes begin to put in new highs and break out, we will be very suspicious should the positive action not flow into the small caps.  We have option expiration and the Nasdaq 100 rebalancing which may be part of the reason for the odd action but we are concerned there may be something more at work.

We are starting to hear some grumbling among traders due to the poor underlying action, which bodes well from a contrarian point of view. We are not yet inclined to throw in the towel and call it a year as we still think there is a decent chance of buying into the end of the year. With less than 3 weeks to go, we still believe that the conditions exist for a sprint to year end.

Yesterday the metals took a beating and today oil is selling off, with these two sectors out of favor, at least in the short term, the timing is right for technology to take the lead. Only time will tell if this comes to fruition.

We are starting to raise our caution levels a bit due to the small cap action we are seeing, but keeping busy updating the list of wood shed warriors that we suspect will soon become favorites again. Quite a few of the best acting stocks over the past few month are taking sharp hits and we have our eyes open for entry points. 

While today’s lethargic action would make it very easy to hit cruise control and start sipping the eggnog, we encourage you to remain on your toes and not let losses get out of hand.

Have a good evening.