The action today is another great illustration of how the bears are incapable of generating downside momentum. We had a gap-down open followed by the inevitable bounce, but this time the bounce failed and when the indices took out the early lows, stops were triggered and more selling ensued.
The catalyst for this second round of selling was the Senate tax bill, which delayed corporate tax cuts and had a few other provisions that weren't too market-friendly. The selling didn't last long as another wave of dip buying kicked in, and that drove the market back up most of the afternoon and resulted in a close near the highs of the day.
It was still a red day for the indices, but they all finished well off the lows and near their highs of the day. Breadth was negative and we had more new 12-month lows than highs. There were some very strong pockets of momentum such as Overstock (OSTK) and SolarEdge (SEDG) , but the biggest problem were the FAANG names.
In some ways, what happened today was that the small group of leaders that have been pushing the indices higher corrected a little and are slightly more in line with the broad market. The average stock has been lagging badly and the gap between the leaders and the average stock has to narrow in some way sooner or later.
It will be interesting to see if the market is going to shrug off the tax issue again. It should be quite clear that passing a bill is not going to be an easy task and won't be done this year. I thought the market would see more pressure following the House bill than it did and I wouldn't be surprised if it continues to be indifferent to the Senate bill.
There is some decent stock picking and the increase in the volatility of the indices today was refreshing. Trading is actually better when the market doesn't go straight up.
Have a good evening. I'll see you tomorrow.