After a brutal day of action on Tuesday, market participants have a day to rest and recuperate as the nation honors the life and service of President George H. W. Bush.
The action on Tuesday surprised both bulls and bears with the intensity of the selling. With a more dovish Federal Reserve and claims of progress on China trade there was reason to expect some underlying support even if profit taking did occur but the market went into free-fall instead. That aggressive selling sparked a number of explanations for what is troubling the market and pushed some pundits to declare that the future looks bleak.
After the close on Tuesday the Commerce Ministry of China stated that the U.S.-China trade talks were successful and that it was confident that the specific items in the agreement could be implemented.
This undermines much of the bearish narrative on Tuesday about how the market was disappointed with the trade issue, but as I wrote that was not what really drove the action. The primary driver for the action was the inverted yield curve and how it triggered massive computer algorithms to drive a move out of equities and into bonds
When the market suffers losses of this size it is difficult to find positives but the biggest one that I see is that this was broad, general selling. Specific stocks were not targeted although a few groups like banks and retail suffered more than most.
The biggest positive is that many 'good' stocks with strong fundamentals and growth were dumped with everything else. There was no recognition of the fact that there are many stocks that have been driven down to bargain levels and are likely to continue to produce excellent results.
I continue to be optimistic about some great opportunities and good trading into the end of the year. This crazy algo-driven selling has to come to the end and the indices need to find support, but I expect to see good stock picking develop very soon and for those stocks that have been unfairly sold to bounce into the end of the year. Tax loss selling is going to be another reason to expect some good trading.
I'm not buying into the idea that the ugly action on Tuesday was an indication that this market is doomed. We may see more downside in the near term but if we stay focused on quality names as it plays out the potential for some end of the year profits is very good.