Stocks Closer Lower on Higher Volume

U.S. Stocks traded higher in the early going, only to reverse and close lower for the day, with losses accelerating in the last hour. Volume was somewhat heavy, suggesting another bout of distribution. The market has been making a habit of trading higher on light volume days and lower on heavier volume days. This is a clear sign of the market struggling at these levels, suggesting it is due for a correction.

Due to continued strength in the shares of Apple, the Nasdaq Composite and Nasdaq 100 did not sell off nearly as much as the Dow and S&P 500. The more economically sensitive Dow Transports were the hardest hit, dropping nearly 1.3% on the session.

The interesting thing to note about today's trading is that the Dollar got hammered in the Forex markets, and crude oil jumped above $81 per barrel. Over the summer, this would have been a recipe for a big rally in stocks. Not today. So, we will see whether today's activity turns into a trend.

I will say this though, seeing crude oil jump to over $81 per barrel is not a good sign. Remember it was only 7 months ago that crude bottomed at around $35. That huge drop in energy prices from last year had the effect of a tax cut. I suspect that the lower energy prices over the summer, plus a rallying stock market helped consumer confidence. That was certainly reflected in the consumr sentiment surveys over the summer. The more recent consumer sentiment surveys are indicating a more downbeat public now. If crude oil gets anywhere near $100 per barrel in the near future, you can bet the stock market will drop significantly. $100 crude oil will do more to stifle the economy than anything else, with the home heating season starting in another month.

Daytraders in the stock market should start considering shorting opportunities going forward. The easy money has been made on the long side for the last six months. Now, at the least, you need to consider both sides of the equation.

Scott Cole

www.bestdaytradingstocks.com