A mild bounce in the afternoon helped ease the pain a bit, but it was a downright ugly session today. Traders were already reeling from the reversal on Wednesday, and the negative tone carried over to today, as stocks started off weak and spent the morning cascading lower. Still, as is so often the case, as poor as the action was in the indices, it didn't nearly convey some of the absolute carnage in individual names. Meanwhile, the two major sectors that looked the best two days ago, health care and consumer discretionary, reversed hard and led to the downside.
The big question, of course, is how the market will react to Friday's jobs report. The ADP numbers yesterday were a bit under expectations, so the bulls may be hoping for a number that isn't hot enough to kindle fear of a September rate hike, but strong enough to signal continued improvement in the labor market. As always, it's not our job to guess outcomes, but to react as the pricing action develops.
This market remains above key support levels and in a trading range, and the hardest thing to do right now is tune out the noise and remain patient. The one big negative from today is that it gave us a potential lower high after last week's bounce off support. This sort of environment calls for some very short timeframes.
The silver lining here is, with an absolute dearth of decent chart setups, sitting on one's hands while waiting for some better resolution isn't a terribly difficult thing to do.
-- Written by James Koford
Aug. 06, 2015 | 6:39 AM EDT
Be Ready for a Change in the Market's Character
- Earnings season landmines have been plentiful.
"One thorn of experience is worth a whole wilderness of warning."
--James Russell Lowell
For a number of years, the market has rewarded those that have chased strength. Strong moves gain further strength and bounces turn into V-shaped recoveries to new highs. On Wednesday, the market looked set to run, as we started the day with euphoric buying. A poor report from Disney (DIS) and a downgrade of Action Alerts PLUS charity portfolio holding Apple (AAPL) were ignored and we blasted off with four-to-one positive breadth.
Usually, this sort of action produces sustained momentum, as bears cover shorts and underinvested bulls add long exposure. That wasn't the case this time. The market action peaked about an hour into trading and we ended the day with some minimal gains. Breadth was still positive and the Nasdaq still had a gain of 0.67%, but the mood had shifted and the chasers were regretful.
After the close last night the pattern of problematic earnings reports continued. Keurig Green Mountain (GMCR), Tesla (TSLA), Fitbit (FIT), The Habit Restaurants (HABT) and a number of others saw a negative response to their reports.
Overall earnings season has produced few gap-and-run reports, and the landmines have been plentiful. This has not been a forgiving market recently. It has been quite easy for a couple poor choices to offset some good gains elsewhere.
While there have been some disappointments recently, there still are enough positives to prevent the market from a downtrend. The indices are above key resistance levels and we have a couple hundred stocks making new 12-month highs. Leadership has been mixed, but there is enough strength to satisfy the bulls, and the optimists are finding positives, but it is a trading range market.
Tomorrow we have a very important jobs report that will have some significant influence on the Fed, and that is going to help set the course of the market in the near term. Part of the reason that we have been in this choppy trading range lately is that there is quite a bit of uncertainty over how this will play out. For years, the bears have believed that a more hawkish Fed would ultimately doom this market, but they have been consistently wrong and paid a heavy price for poor timing.
Many market players are concerned that the market is on the cusp of some struggles with higher interest rates. It is not an illogical belief, especially since we have not had a significant correction in a while, but there still is no price action to back up their bearish beliefs.
Nonetheless, we need to be mentally prepared for a change in market character and the action yesterday should make us a bit wary.
There still is nothing really wrong with this market but there are issues and we need to stay vigilant and be ready to act as conditions change.
I'm heading to northern Michigan with the family for a little vacation and will be checking in over the next week or so. Many others are taking a break also, and that thinner trading will add to the market uncertainty.
Good luck, and go get 'em.