The worry and concern over Italian bonds has cooled off following some political wrangling and successful 5 and 10-year bond auctions. This is not an issue that is going to disappear for a while but it is being shoved aside for now as buyers seek a reason to add long exposure.
The action on Tuesday was not as pervasively bad as the S&P 500 and DJIA indicated. The two senior indices lagged with the DJIA down over 1.5% but this was primarily a function of weakness in big banks, financials and stocks with European exposure.
It was a different story for small caps and some of the bigger cap technology and FAANG names. They held up quite well with small caps actually managing to trade in positive territory for part of the day.
On my screens I had some weakness in biotechnology names but it was offset by strength in China-related stocks and some technology plays like Twitter (TWTR) . The action yesterday was not indicative of a broad-based breakdown. It was concentrated in financials and helped to produce a rotation into some of the technology names.
The bounce this morning is typical of how the market seldom seems to generate sustained downside momentum. This Italian bond news is a bit different than the usual Trump generated drama and I'm a bit surprised it is being shrugged off so easily but it is the nature of this market to dismiss these negatives very quickly.
Speaking of Trump induced market drama, there is some concerns again that the US is being aggressive in imposing tariffs on China goods and that it could undermine trade negotiations. The market seems unconcerned about this issue at this point but it is likely to be the headline if the market suffers another bout of selling.
The selling yesterday did so some damage to the charts of the S&P 500 and the DJIA but the Nasdaq, Nasdaq 100 and small cap indices are all in good shape technically. The selling yesterday did quite a big of damage to the financial sector (XLF) and stocks like Citigroup (C) and Goldman Sachs (GS) are on the cusp of even deeper pullbacks.
Overall it remains a stock pickers market. If you were in the right sectors yesterday the action in the DJIA was meaningless. There continues to be some good looking charts and opportunities. I have quite a few China names on my radar this morning such as Alibaba BABA and will be looking at making some additions.