Whenever we see downside reversals in the first hour of trade, on a majority of the market leaders, our experience is that we are probably in for some pain over the next few days. It’s a clear warning shot.

 

Yesterday, the majority of leading stocks experienced large reversals. We normally don’t suggest using intraday charts, but this five minute chart of Baidu really illustrates the point. You can also see this on the Daily Chart as well. Notice over the last three days that we have opened strong and then throughout the rest of each day, there is heavy selling into that initial strength. In a healthy market, true leaders should be able to hold on to their gains and close near the top of the range. Since yesterday was a fairly strong reversal, we have to assume that supply is beginning to beat out the demand in the short term, which is a sign of technical weakness.

 

Best Returns,

Your MarketSmith Team