Earlier this week, market players were looking for a "sell the news" reaction to the announcement of President Trump's tax policies. That didn't happen, probably in part because it was so anticipated.
This morning we are seeing a "sell the news" reaction by the broader market to the very impressive earnings reports from Action Alerts PLUS holding Alphabet (GOOGL) and Amazon (GOOGL) . The big difference is that this sort of reaction wasn't anticipated. Both GOOGL and AMZN are trading up sharply, but the indices are struggling -- with small-caps, in particular, being weak.
This sort of reversal on good news is notable. It is not unusual for a reaction to earnings from a major stock to be the catalyst for a turning point. I recall quite clearly on Intel (INTC) that earnings in 2009 were the catalyst for a major uptrend.
Despite Amazon and Alphabet, breadth is running nearly 2-to-1 negative and the number of new 12-month lows has fallen to around 400. I asked this morning whether Amazon and Alphabet could provide leadership, and the answer at this point is no.
I've added back some small-cap index shorts in the form of the Direxion Daily Small Cap Bear 3X ETF (TZA) , but haven't done much selling at this point. This reaction today is worrisome, but there isn't any major shift in market character yet.
Don't forget we will likely hear quite a bit next week about the old saying "sell in May and go away." Seasonality has not worked well in recent years, but I'm sure the bears will be happy to remind us of the possibility.
