Stocks Stumble after a Gap Open

Stocks were set to soar on Tuesday with crude oil prices touching multi-month lows. Hurricane Gustav did not cause the damage that was expected additionally, it was weakier than expected upon landfall. On top of the crude oil trade natural gas has been simply anhilated, showing signs that there is plenty of supply of natural gas heading into the winter months. The positive news from the drop in energy prices only lasted for so long, stocks simply lost ground and headed lower. Regardless of the reason, stocks sold off in heavier trade and put in a very bearish reversal.

Price action like Tuesday’s only spells out trouble for the markets ahead. Even with the gap higher in the morning New Lows inched out New Highs, again showing the lack of strength this confirmed rally would need in a new bull market. Complimenting this ratio the NYSE short interest ratio hit a new record high showing it would take almost 18 days to unwind every short position on the NYSE on average volume. This is a tremendous indicator, it can’t be viewed as a bullish indicator but what it does tell us is that when we get a new bull market the move will be VERY powerful. When shorts cover, they will buy back at any price driving prices higher.

This market certainly isn’t healthy, cash is still king!Enjoy your week.

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