After five days of poor action in the indices and even worse action in individual stocks, the market is set up for some sort of oversold bounce. We are seeing some signs of dip buying in the early going but it is not very robust.
Breadth is running about even and we have more new lows than new highs so far. Biotechnology and agricultural chemicals are showing some signs of relative strength and the FANG names are helping the Nasdaq 100 (QQQ) outperform.
A bounce try at this juncture is going to provide us with some good insight into the health of the market. Typically, the bulls have been able to generate bounces without too much difficulty. They may start slowly but they pick up in the afternoon and we end up with a strong close. If the bulls can manage that sort of action today it is going to undercut some of the growing bearishness.
There seems to be quite a bit more debate lately about the prospects for a market turn. The bears are gaining confidence that a top is forming, but the bulls are equally insistent that booming economic optimism will keep this market running.
I intentionally try to cultivate a neutral view and focus instead on the price action. While the price action has been weak for five days now, it hasn't developed to a point where the overall trend has shifted. I'm expecting an oversold bounce now and that will provide us with some additional insight into the health of the market.
The easy thing to do right now is to declare that a top is about to occur. It is the logical argument and there is plenty of fundamental ammunition. Maybe the bears will be right but I demand some hard proof in the form of poor price action and I'm not seeing it.
I don't have much on my radar right now but I do have some Financial ETFs (XLF) for a bounce and I like the action in biotechnology especially Kite Pharm (KITE) and Global Blood (GBT) .
The indices are inching up and it looks like the oversold bounce wants to gain some traction. I cut most of my position in UltraShort Russell 2000 (TWM) but will look to re-enter at a later date.
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