Stock Market Early Morning Insights – November 3, 2016

The NASDAQ composite closed just above critical support which is at the 5097.80 level. Volume was heavier than normal, nearly 20% above its 50-day moving average volume. This was the 7th day in a row that the NASDAQ closed lower than the previous day as it remains under heavy distribution.

The S&P 400 mid-cap in the S&P 600 small-cap indexes are in worse shape as they continue to plummet. The charts below show that the indexes all closed near the bottom part of their daily trading ranges. This is a sure sign of distribution. As I said yesterday, if the NASDAQ composite doesn’t hold is critical support level at 5097 on a closing basis, I believe this market will get much uglier than it already is.

With the pain that is been dished out to the Bulls recently, normally I would expect capitulation, and a rally, but these are not normal times with a critical presidential election a few days away and the uncertainty that surrounds it. Despite the ugly black candles on the Indexes, internals were not that extreme with the composite coming in at 2.92 to 1 negative. I consider a 5 to 1 day and above extreme, and we may have to see a day like that for capitulation to occur. Otherwise, it could just be one failed rally attempt after another.

This is another big earnings day with about 370 stocks reporting. Facebook was a story after hours yesterday as they reported very strong earnings well above expectations, but guidance going forward is weak. Facebook closed yesterday at $127.17, and is currently trading at $120.91 after reaching a low of $116.31. This is another one of those market leaders which is rolling over. The afterhours reaction to earnings may be overdone, and I’m curious to see if the selling is absorbed. I know for a lot of shareholders that this is a buy it and bury it stock which they will hold indefinitely, but it’s still painful to see it lose $13 from its recent high of $133.50.

The Biotech rally for the IBB and XBI ETFs did not last as they also fell victim to selling pressure. The top 50 GIR shows strength in Biofuels, Restaurants, some Semiconductor Devices, Internet-based Services, Infrastructure Software, and a couple of Specialty Pharma stocks. CORT is on the list again after moving up 8.5% yesterday.

Stock index futures are up this morning, but it’s a close that counts. I am still in capital preservation mode, but there are opportunities on the long side if you look closely. One stock in the top 50 GIR that looks interesting to me is MB, Mindbody, another cloud computing related stock. After selling off early yesterday, buyers stepped in, and the stock formed a test for supply flag. It will have to clear resistance around the $21 level for it to be on its way, and earnings are out-of-the-way. This is not a recommendation, but it is going in my watchlist.

STOCK MARKET EARLY MORNING INSIGHTS

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