"Ah, September! You are the doorway to the season that awakens my soul... but I must confess that I love you only because you are a prelude to my beloved October."
-- Peggy Toney Horton
For a while now, I've been discussing how this has been a much better market for stock picking than market timing. The indices have been trading in extremely tight ranges for quite a while, but we've had a steady diet of positive action in individual names.
This strong action under the surface has primarily been a function of relative strength in small caps. The small-cap indices have had very steady uptrends since the Brexit shakeup back in late June. While the S&P500 has traded nearly flat since Aug. 5, the Russell 2000 has been inching up steadily.
On Wednesday we had a slight reverse in this action. Small caps underperformed and many of the leading individual stocks took some hits. Names like Airgain (AIRG) , my stock of the week, gave back a big chunk of the gains from earlier this week.
The indices did bounce back quite nicely into the close yesterday, but smaller stocks lagged and did not recover. To complicate matters, the market is extremely thin right now. The week before Labor Day is peak vacation time and we often see random movement. Volume did pick up slightly yesterday, which produced a technical "distribution" day, but it hardly seems meaningful given the lack of any real vigor.
We have the start of the new month now, which tends to create a favorable bias as funds contributed to retirement accounts are automatically invested. We also have a long weekend coming up, which often produces a favorable bias. However, the big event in the next two days is the July jobs news, which is due out on Friday morning.
The Fed has been indicating a strong inclination toward a rate hike and better-than-expected jobs news on Friday would likely cement the deal. There is a Fed meeting and announcement coming up on Sept. 21 and the market is likely to be pricing in higher rates should we see good jobs news on Friday.
The bears are anticipating this scenario, which may have been part of the reason we saw weakness yesterday, however they are going to be very focused on this jobs news. The fact that September tends to be the weakest month of the year is not lost on our pessimistic friends.
At the moment it continues to be a stock pickers' market, but the jobs news and anticipation of the Fed's decision later in the month may force us to focus more on market timing. My game plan is to manage positions and look for opportunities, but to keep a wary eye on the potential for a change in market character as the focus on the Fed gains traction.We have a positive open on the way. The SPY is set to recoup yesterday's losses completely, but individual stocks are acting rather lumpy.