"Applying logic to potentially illogical behavior is to construct a house on shifting foundations. The structure will inevitably collapse."
― Stewart Stafford
Charts are not infallible predictors but the charts of all the major indices suggest this market is going lower. There are a number of lower highs, breaches of key support levels, slowing momentum, distribution and a host of other considerations that suggest that the selling is not yet finished.
Some pessimists might suggest that a long-anticipated bear market is starting to emerge. The bears have believed for year that it would be a surge in interest rates that would trigger the next major correction and with the 10-year bond now exceeding 3% that argument has gained some weight.
What has been most disappointing about the market recently has been the poor reaction to generally good earnings. Netflix (NFLX) was one of the few bright spots but since then names like Alphabet (GOOGL) , Caterpillar (CAT) and 3M (MMM) have robbed the market of positive sentiment.
The good news is that expectations have now fallen to such a degree that conditions are good for a bounce. The technical setup for three big earnings reports tonight from Intel (INTC) , Microsoft (MSFT) and Amazon (AMZN) is very good.
Rather than a 'sell the good news' setup we now have a setup to 'buy the bad news' since it is already discounted to a great degree. I suspect to see some positive positioning in front of tonight's reports.
Another thing to keep in mind about the market is that we are still largely driven by computer algorithms. The computers no longer have this persistent positive bias that produced buying every time there was any dip but they are still looking to take advantage of poorly positioned market players. A weak open this morning with the earnings news tonight is a good setup for a bounce. That is especially so since sentiment continues to erode and there is real concern that this market is going higher.
The charts look terrible and longer term we have to be concerned that the market is going to struggle but in the short term logic suggests a bounce. If you have a short-term time frame, there may be some opportunity for some quick plays.
Twitter (TWTR) earnings are hitting this morning and the stock is trading up nearly $4 on a very strong revenue beat. This reaction is a good example of the logic I'm anticipating to bounce this market. They are chasing TWTR aggressively because expectations had dropped so sharply recently.