After a steady drubbing for days, the market finally managed a little bounce action on Monday. Growth stocks and technology names saw some of the pressure lift, but there also was a sharp rotation out of energy, fertilizer, steel, insurance and all the sectors that have been recent leaders.
The Elon Musk acquisition of Twitter (TWTR) helped sentiment, but it was an anemic bounce on mediocre breadth and low volume. Countertrend bounces are often very strong, but the conditions were not quite right for this bounce to gain steam. While there has been very steady selling, there has not been the sort of panic pressure that creates a fast rebound.
Technically the market is in very poor shape, and the best we can hope for is another countertrend move. There is a slew of major earnings reports coming up with Microsoft (MSFT) reporting after the close here on Tuesday.
While the headline numbers will be important, the market will be very focused on guidance. Is inflation causing problems? Is growth slowing? Are supply chain issues still impacting production? Are labor costs going up?
So far first-quarter earnings season has been a disappointment, but we are now going to see what names such as Microsoft, Meta Platforms (FB) and Apple (AAPL) have to say.
I suspect that a poor response to the reports from the technology giants may be the best way to produce a solid market bottom. I don't think we will see sustained momentum on good reports, although they may produce some short-term bounce action.
Bad earnings would probably be healthier for the market at this point, and there is likely to be heavy selling pressure into a bounce on good news.
Stay patient and flexible. The reaction to earnings is going to tell us where this market is headed next. Bad news may provide us with the best technical action for a bottom.