A big bounce after a very poor open was a positive on Tuesday, but the strength sputtered out and the market continues to wrestle with a nasty correction. Many market players hoped for some good earnings reports to help turn the market back up, but so far the response to reports has been very weak. There are a few that have been OK, such as McDonald's Corp. (MCD) , but if you are looking for some sustained momentum you won't find much.
On Wednesday evening there are reports from Microsoft Corp. (MSFT) and Tesla Inc. (TSLA) that will attract some interest. However, the market doesn't seem to be in the mood to chase a good report even when a stock is already beaten down, such as Caterpillar Inc. (CAT) and 3M Co. (MMM) were into their earnings news.
Tuesday's early bounce helped to improve sentiment a bit, but it was nothing more than a big oversold bounce in a market that is seeing some extreme negative sentiment. here was an even better bounce last week, but that was totally wiped out in three days and set up the gap-down open in the indices on Tuesday.
The thing that is most important about the market right now is that the recent price swings have done very little to create better technical setups in individual stocks. There are a handful of positive charts, but the vast majority of stocks that have pulled back are still struggling to build support and are not in good shape to produce sustained upside.
If you are an individual stock picker like me, the only way to play this market is to look for some oversold bounces. The problem is that time frames must be quite short. These are just very short-term trades rather than position trades that will work over the course of weeks.
At some point the market will shift from big-picture worries and return to a focus on individual stocks. When that happens we will start to see the better stocks stand out and astute stock pickers will be rewarded. Currently it doesn't much matter whether a stock is expensive or cheap or whether it has solid fundamentals. The current market is about escaping positions before they can fall further and then waiting until conditions improve.
It is a tough market environment and the best way to deal with it is by holding a high level of cash and staying patient. Those are your most powerful tools in corrective action like this. The folks in the media constantly will try to suck you back into the market before the action improves as they are best rewarded when everyone is invested in stocks. People holding cash are not the sort of customers that either traditional Wall Street or the business media want.
We have a slightly negative open on the way and a few lackluster earnings reports. Market players seem unconvinced by Tuesday's bounce, but at least there are some clear support levels at Tuesday's lows to consider.
This market has plenty of work to do and stock picking is still extremely poor, but at least we are seeing a long-overdue washout. Eventually conditions will be created for more upside, but cash and patience are the keys at present.
