Concern over a meltdown of the Turkish lira has cooled overnight and indices are bouncing sharply. The Turkish central bank has promised to inject liquidity from foreign currencies and that has caused a bounce in the lira of 8% or so.
The crisis in Turkey may not be over, but this is a market that does not like to embrace a negative narrative for long. Market players anticipated an immediate recovery yesterday morning and were caught by surprise when the early bounce failed. However, one thing we have seldom seen in this market is sustained downside momentum. The bears may win a battle or two, but they have not been able to keep the pressure on for long.
There is a faction of this market that is extremely anxious for more severe corrective action. Many hedge funds produce better relative performance in down markets. A correction would allow them to catch up to long-only peers that have ridden strong trends in FAANG and other growth names.
I often find myself rooting for weakness, not because I'm a bear but because it will produce better chart setups. The action yesterday was painful in many individual stocks that have been good trading vehicles in recent months, but the pullbacks are what are needed to create some good entries.
I have mentioned a few names such as Turtle Beach Corp. (HEAR) , Bloom Energy Corp. (BE) and Sarepta Therapeutics Inc. (SRPT) as stocks that are on my radar. There are many others that are now caught in a lull while we wait for poor seasonality to play out and third-quarter earnings expectations to kick in.
The indices look better this morning, but the last half of August can be a very tough time to trade due to slowness and volatility. It is unlikely that we will see a strong uptrend, although the indices are doing a good job of holding support where needed. The weakness of the last couple days did not cause any major technical damage.
The strength this morning is not the sort of move that can be chased easily. This isn't a market that is producing good momentum. The bounce we are seeing likely will allow some folks to escape positions that acted poorly. This is not a market that is going to produce fear of missing out.
My game plan is to work on identifying some key names for setups into third-quarter earnings. There will be no rush to accumulate, but I want to a have a strong list of stocks that had good quarters and are seeing sharp increases in revenues. I'll be looking for entries off support levels and as they gain positive momentum.
The bounce this morning is producing a sigh of relief, but this is going to remain a difficult trading market. Stay opportunistic and manage positions tightly.
