After yesterday's very poor action there is some bounce action today but it isn't that the sort of snap back that sometimes occurs when the action becomes panicky. The big problem recently is that the FAANG names have been leading to the downside and the negative momentum has scared away the dip buyers that loved these names for so long.
This creates an interesting setup going into the Facebook (FB) report tonight. Facebook has been under pressure since its second quarter report that greatly disappointed the market. The stock has seen a steady diet of bad news and lowered expectations, and has been trending downward for nearly three months now.
Expectations for Facebook's report tonight are quite low but the big issue is whether all the bad news has already been discounted. The stock is oversold and is trading at levels it last hit back in April 2017.
If the stock gaps down on its report I believe it is likely that some value buyers will be looking for entry. This is a classic 'buy the bad news' setup and if the initial response is negative that will trigger some buying interest.
If Facebook gaps up on its report it is much more difficult trade. We saw what happened to Amazon (AMZN) which reported some decent numbers. It quickly went from green to red and has been under pressure since. Facebook is more oversold but there are trapped longs that may be looking for escape into strength and with Amazon's poor action still relatively fresh it will be a worry.
I continue to like some of the bottoming action I'm seeing in small caps but this reaction to Facebook tonight and Apple (AAPL) tomorrow are going to be extremely important. If those stocks do not bottom on their earnings reports it is going to impact the broad market and keep buyers on the sidelines.