After a very impressive intraday reversal on Tuesday, the market didn't even try to bounce after a poor open. The selling wasn't all that heavy, but it was steady all day and breadth was extremely poor. A technical issue that prevented trading on the NYSE didn't help matters. While it had little impact on actual trading, it did contribute to the chaos and uncertainty.
The uncertainty of the Greece situation continued to weigh on the market, but it was the China meltdown that was the primary catalyst today. The market hasn't paid too much attention to China as it has been slowly crashing for a couple of weeks, but the action last night and the fact that nearly half of the stocks over there aren't even trading had an impact today. That combined with what appears to be a harder line on Greece by some of the eurozone prevented even the always-optimistic dip buyers from giving it another try.
Technically, the indices suffered enough damage today to fall into a downtrend. The S&P 500 closed below the 200-day simple moving average for the first time since October. That correction led to a massive V-shaped move, but we sure aren't hearing much talk about that sort of recovery again. This is a significant technical breach and is going to move some money to the sidelines.
What is clear right now is that the character of the market has shifted. It has been battered and bruised by Greece, China, oil, currencies and a lackluster economy. Central bankers are out of ammunition and zero interest rates no longer have much power. Perhaps we'll have some decent earnings reports in the next few weeks to help the mood, but right now the bears have the upper hand and have been gaining momentum. Respect the trend and protect capital.
Have a good evening. I'll see you tomorrow.
July 8, 2015 | 10:21 AM EDT
Momentum Chasing Not an Option
- · Potential for a headline out of Europe to provide a spike is high.
Once again we opened well above overnight lows, but market players are not building on yesterday's big reversal. Breadth is running very poor at about four to one negative and the momentum screens are almost completely red.
The active traders are mainly trying to catch some bounces in the China-related names that have been slaughtered. They just want some quick flips and the volatility in those names is offering some decent movement.
At this point, there simply aren't many chart setups for position traders. If you want to play this market you have to be looking to play bounces in stocks that are technically broken. Chasing momentum is not an option since there is so little of it right now.
Over the past week the market has done a nice job of finding intraday support and closing strong. It is mainly a function of dip buyers that have had so much success for so long. They are always looking to buy the dips and aren't scared very easily. What can shift things is if we starting seeing more failed bounces and a steady diet of lower lows. New day lows will kill sentiment faster than anything.
I have a couple new names on my radar. Himax Technologies (HIMX) and Guidance Software (GUID) had good moves yesterday and are in position for attacks on recent highs. The problem, of course, is the overall market. Good charts just don't work to the same degree in this market.
We are making new intraday lows as I write, which isn't a good sign but the potential for a headline out of Europe to spike us again is quite high. There is plenty of risk out there so make sure to protect capital.
Jul. 08, 2015 | 6:36 AM EDT
Nothing Tells Us the Worst Is Over
- Stay vigilant and manage capital carefully.
"Uncertainty is a certainty. Embrace it, because you can't escape it."
--Kelly Martin
The big intraday reversal on Tuesday had market players feeling more optimistic, but it turned into a bull trap, as the Chinese markets crashed further overnight and the Greek uncertainty dragged on.
Despite the efforts by leadership in Beijing to prop up the markets, nearly half of all stocks on the Chinese exchange have halted trading. This has caused even more pressure on the remaining stocks, as investors are forced to liquidate to cover margin calls. Security regulators in China even used the term "panic sentiment" to characterize what is going on.
Until the last couple days, markets outside of Asia had pretty much ignored the meltdown in China. There have been some headlines about the bubble popping but for the most part we have remained focused on Greece and interest rates. China was seen as being contained, and since it still was up substantially for the year, it wasn't that big of a deal.
The crisis in China has now accelerated to the point that it is spilling over to the rest of the world. We already have an undercurrent of unease caused by Greece, and if a miniscule economy like that can cause so many problems, we can't be ignore such chaos in the second largest economy in the world.
China is causing some issues this morning, but overall the market has handled the Greece crisis fairly well. We've had a couple sharp dips but have bounced back, and the reversal yesterday after some extremely gloomy action in the morning was impressive. The mood on Tuesday morning was as bleak as it has been in a while, but there still was support out there.
Market players have been well conditioned to buy dips. They were hesitant yesterday but ultimately they regained their confidence and went back to work. They are going to have another opportunity to buy weakness this morning.
One problem is that the more often bounces like yesterday failed, the less of an inclination there is to buy the dip. After traders are trapped a number of times, they lose their zeal for being weakness buyers pretty quickly.
Another good bounce wouldn't be a surprise, but we have substantial headwinds to deal with. Greece has a new deadline to present a deal. The eurozone has given them until Sunday to finalize something. There are some very serious discussions about an exit and it certainly is a possibility.
In addition to these ongoing headlines, we have the minutes of the last Fed meeting due out this afternoon, which will cause some discussion of interest rate hikes once again. With the chaos in Greece and China, right now there is little appetite for higher rates, but it is a fear that the bears will use if they can. With the market already under pressure, even a slightly more hawkish Fed could be an issue.
While the reversal yesterday was a technical positive, a move like that needs confirmation in the form of a follow-through. A strong bounce indicates good support, but it can fail fast when we have the sort of news environment like we have now.
We haven't yet seen a full-fledged downtrend emerge, but a failure of yesterday's bounce is going to be a major negative. We have had a series of good closes lately, which have helped, but under the surface this market has already suffered substantial pain. There are few places for the bulls to hide right now. Traders may enjoy playing volatility, but as far as building longer-term positions, there isn't much to do right now. Most charts look very poor, and bottom fishing requires patience and caution.
Typically, we have seen futures bounce back from this sort of weakness before the open, but right now things are highly emotional and driven by the next news headline. There simply isn't any easy way to predict how things will play out from here. The best approach is to stay vigilant and manage capital very carefully. There is nothing to indicate that the worst is over.
