Stocks Coming to Terms With Negative Data

Currently, the indices are in a battle against upper resistance from the recent breakdown. Before investors can even consider taking anything more than a very short-term position, we need to see a break above the 900 level on the S&P 500 and then hold above the current downtrend line. After that, the most important information will be how the price and volume react when the index gets up near the next resistance level around 1000.

S&P 500

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Source: TC2000

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Another interesting development I am seeing is that the ProShares Ultrashort S&P 500 (SDS - commentary - Cramer's Take) looks like it may be in a topping formation, especially after the key reversal that appeared last Friday. You can also see that the institutional balance of power and money-stream are weakening. However, as volatile as this double inverse fund has been, it is still sitting at solid support and holding above the important 50-day moving average. Until we see a break below $90, the uptrend remains intact.

SDS

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Source: TC2000

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SKF

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Source: TC2000

If you want to talk about extreme volatility, take a look at the ProShares Ultrashort Financials (SKF - commentary - Cramer's Take). Over the past 10 days it is taken a round-trip from $150 up to $303 and in three days back down to the $150 level. That is a drop of 50% in three days. Do you wonder why I keep insisting on protective sell stops on every position?

So, if you're thinking about taking a position on this correction, there is a lot of support at $150, but make sure that you have a protective sell stop 5%-10% below that level, because if the market does turn, financials will likely participate.

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I stated many times that I do not trust any rally that develops without some type of leadership characteristics in stocks. For that I keep an eye on the leading and lagging indicator of very strong stocks to very weak stocks in the broad market.

This indicator calculates the difference between a very strong to very weak daily number of stocks. This indicator shows the change of balance between how many stocks are shifting between strength and weakness.

You can see that on Nov. 4, the strong stocks vs. weak stocks moved up close to its resistance line (which is still in negative territory). When it got close, it pulled back and moved lower. It is still possible that it will make another try at moving up to the resistance line to test it in the coming days.

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At time of publication, Manning had no positions in stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.