'Buy on the sound of cannons; sell on the sound of trumpets.'
-- Nathan Mayer Rothschild
The story of the market in January was straight up action with barely a pause. The pattern was finally broken over the last few days and now the stage is set for increased volatility in both directions as we head into February and earnings season starts to wind down.
We have had two interesting shifts in the price action this week. First was the biggest drop since early last year. This time the dip buyers didn't rush in quite as quickly and there was some technical distribution as volume picked up.
The second development was a sharp swing following the FOMC interest rate decision yesterday. The market has been quite sanguine about the Fed for a long time but the hawkish tone in yesterday's policy statement caused some concern and produced a sharp drop in the afternoon. The computer algorithms were hard at work and after helping to accelerate the slide, they abruptly reversed and had the indices back up again.
After the close Facebook (FB) underwent a similar dip and recovery as market players reacted to some poor metrics at first but then embraced some very solid numbers.
We did have volatility for most of January, but it was all in one direction. Volatility is simply price movement of any type. It doesn't necessary go in both directions but that looks to be shifting now as the market deals with overbought technical conditions and a 'sell the news' inclination.
Oil, gold and Bitcoin are slipping this morning but it is earnings that are the focus. The sharp reversal to the upside and a number of target increases is boosting Facebook and helping the mood but there is some mixed action else. Ebay (EBAY) and Qorvo (QRVO) are doing well, Microsoft (MSFT) is flat and Paypal (PYPL) is down. Alibaba (BABA) just reported and is trading lower initially.
We still have very extended technical conditions and there has been some inclination toward selling good news this quarter so we will see how that plays out tonight. Facebook's action today will provide some additional insight as well. Intel (INTC) is a good example this quarter of how very good earnings don't necessarily produce sustained momentum.
For most of January I was celebrating some exceptional stock picking. That has cooled off over the past week or so but that is the nature of markets. We need many stocks to consolidate and reset before they can make another thrust higher. There are still many small caps that will report earnings in the next few weeks so there should be some good opportunities developing.
Today's business is to watch to see if good earnings news can produce some sustained moves or will traders be looking for exits into strength.
Early indications are slight positive but the Nasdaq is lagging.