"Faith and hope mean absolutely nothing where consistent action fails to exist."
-- Edmond Mbiaka
On Wednesday, the market did something that has been fairly rare in recent years. It traded straight down and completely reversed a big move on the prior day. Typically, when we have a positive move like we did on Tuesday, there is good underlying strength and the dip buyers will jump in fairly fast. That did not happen at all this time.
That would seem to set the stage for some downside momentum, but the perverse nature of the market demands a gap up open instead. It is practically a joke that we move in such random fashion, but it is the nature of this market lately to trip up both bulls and bears.
The main excuse for the strong open this morning is further strength in oil. The International Energy Agency cut its forecasts of a supply glut and we have oil building on yesterday's strength. That is the headline explanation for the positive action this morning, but it is probably more likely the market is just messing with the minds of traders.
Yesterday, the strength in oil didn't matter at all. The focus was on poor earnings reports from Trifecta Stocks portfolio name Disney (DIS), Macy's (M) and Fossil Group (FOSL). Retailers were slammed, and talk about a recession bubbled up. What was most surprising yesterday was that we had only a very brief intraday bounce try early in the day and then closed at the lows. That is unusual, especially when we had so much positive action the prior day.
The action yesterday did not do any major technical damage. The S&P 500 is still trading above its 50-day moving average, but it was surprising to see the mood shift so fast. We have consistently had good underlying support, because the bulls still have faith in the central banks.
The bears have been growing a bit louder lately, as we enter the seasonally weaker time of the year and talk about how the market is losing confidence in the central bankers is gaining steam. The bears thought that the central bankers were on the ropes back in January, but they came roaring back with coordinated action in February and March.
The bearish scenario now is that there is danger of a mild recession in the U.S. and the Fed no longer has the tools to battle it. All they are doing these days is delaying rate hikes. The next step is negative interest rates, and that is going to scare some folks as it confirms how awful this economy really is.
Right now, we are dealing with a choppy, sloppy and random market. We dance to the movement in oil one day and worry about retail sales the next. There simply isn't any logic that works very effectively in this. What is worse is that the action is mostly index-driven, and that individual stock picking is extremely difficult.
We have had two trend days in a row following gaps in opposite direction. If the pattern holds, we trade straight up all day today. Of course, that might be too simple. Keep an eye on oil and stay aware that this market is working hard to frustrate both bulls and bears.