Institutions selling positions across the broad market

Prior week’s rally ended abruptly, replaced by widespread selling as institutions reacted to a wave of disappointing earnings reports. Major indexes were all down for the week, with The Dow now down 1.4% for the year, Nasdaq Composite still up and benchmark S&P500 up only 1.0%.

Although the major index values remain in the narrow channels they have oscillated within all year, many stocks in general, including many among our Level 1, 2 and 3 lists, declined significantly more than index declines would suggest. In fact many stocks declined more last week than any week in 2015 and a large number are at new yearly lows. A bit of an exaggeration to use the term “bloodbath” for passive buy-and-holders, but not far off – they will be alarmed when they see the decline in their account statements for the month of July.

With institutions selling positions across the broad market, it was likely a very profitable week for those of you predominantly short. Subscribers with mixed portfolios likely saw your gains in shorts offset by losses in your longs for a small net gain/loss. For any subscribers in long positions only it was likely a giveback week. Although some of our long positions continued rising, most longs entered in the past 2 weeks are exits for loss.

A disturbing development last week was the very high number – 11, highest of any week in the past year – of abrupt, enormous price increases (“explosions”) and decreases (“implosions”) among stocks on our Level 1, 2 and 3 lists, the result of institutional investor surprise reaction to better than/worse than-expected earnings or breaking news announcements.

Even though 5 of those explosions/implosions were in our favor for large gains, we don’t like to see them, as they are evidence that corporations we hold positions in were not forthcoming with institutional analysts – which violates our operating assumption that institutional investors are well-informed and unlikely to be surprised by corporate earnings announcements. After all, we rely on their bullish/bearish sentiments to guide our trading. Another 3 that would have been in our favor for large gains were missed because the stocks were in AVOID status. That leaves 3 explosions/implosions in one week – when we typically see only 2 all year – that produced very large losses. While we accept that numerous small trading losses are to be expected from a technical analysis-based trading strategy, it is very uncharacteristic for us to absorb large losses such as these. Specific Level 1 explosions/implosions, favorable and not, are mentioned below.

Highlights: Only 2 new weekly highs in recent positions. Long double-digit gains in AKAO +13% (2 wks) and MDXG +21%. CARA was one of those profitable “explosions”, the long gain on which is now +80% in just 5 weeks – congrats to those of you with this position.

14 new weekly lows. Double-digit short gains increased in BAS +32%, CVTI +30%, ECA +37%, ERF +25%, PDFS +21%, PDS +29%, SEAS +14%, TKMR +20% and VICR +27%. While substantial gains for us, these percentage figures are substantial losses for buy-and-holders.

Level 1 list saw 2 “implosion” losses, giving us the same losses as buy-and-holders: CTCT declined 16.3% on the week and LOCK posted an enormous weekly decline of 51.7% – the most of any Stock Trader Week stock in the past year.

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