Let's call Wednesday a highly constructive session for the market, but leave it at that. It's not time to run with the bulls just yet.
It was an impressive turnaround for the market, no doubt, but still only the first day of a rally attempt for the S&P 500 and Nasdaq. Yes, the S&P 500 ended its seven-session losing streak, but my general take on things is that recent technical damage done to the S&P 500 will take more time to repair. However, it's possible that Wednesday's action could be the start of a tradable rally, especially if Friday's jobs report comes in better than expected.
After hitting an intraday low of 1,234 on Wednesday, the S&P 500 staged the mother of all upside reversals, ending the day higher by 0.5%, to 1,260. Volume on the NYSE was impressive at 1.29 billion shares, above average and also higher than Tuesday. Indeed, what looked like another day of distribution in the market ended up being a day of accumulation.
The Nasdaq also finished near its session high on heavy volume. Similar to the S&P 500, it remains below its 200-day moving average. The tech index managed to hold above its June 16 intraday low of 2,599.86, a key support level for now.
There may have been some fresh money coming into the market on Wednesday, but I suspect much of the strength was due to short-covering. That's why I'm not entirely ready to trust the day's action.
From here, I need to see consistent signs that big money is coming in from the sidelines. I'm talking about the institutional investors -- you know, the ones who have been on the sidelines forever, hesitant to put money to work in stocks. Who can blame them in the current environment where uncertainty about the economy is at a fever pitch?
While I'm not expecting a straight-up line from here, I realize that a tradable rally can occur when it's least expected, so I will continue to pay attention to stocks with healthy charts that have been holding up well. There seems to be an ample supply of growth stocks out there capable of providing leadership. This is another positive.
I have a slew of stocks on my shopping list at the moment, but I'm not ready to commit capital aggressively at this point, even with a high cash position in my model portfolio. When price and volume in the major averages turn positive again -- generally characterized by higher-volume gains and lower-volume declines -- I'll be ready to wade back in. I don't want to make the common mistake of jumping in too early. The market still needs to prove itself more.
Under the category of stocks acting tightly, how about Apple (AAPL) and Google (GOOG) holding above their 20-day moving averages? Impressive price action, indeed, during the Nasdaq's recent downturn. Both stocks continue to look strong in a rough market. They could have more left.
The strength of other growth names such as Herbalife (HLF), Deckers Outdoor (DECK), Chipotle Mexican Grill (CMG), Green Mountain Coffee Roasters (GMCR), Mastercard (MA) and Lululemon Athletica (LULU) can't be ignored. All have the qualities I like to see in a stock - namely, top-notch fundamentals and excellent relative price performance. These stocks could also have more left in the tank, especially if the market starts to rally again.
Clearly, the next market-moving headline will be on Friday when the July employment report comes out. Economists expect non-farm payrolls to rise by 84,000, with unemployment staying unchanged at 9.2%. Up until Wednesday, the market had been pricing in a bad number, so an in-line number or better could be enough to spur another round of buying. We'll see.