The S&P 500 managed its first negative close so far in July, and some of the bears are breathing a sigh of relief. They have been looking for reversals that have never gained steam and have been painfully squeezed as the Nasdaq hit a new all-time high on Monday.
The question now is whether they can gain some downside traction. The negative narrative is solid as Covid-19 cases continue to grow and weak second-quarter earnings are likely to hit, but downside follow-through has been a rare beast since the March lows.
The last three times the S&P 500 had a negative day it bounced back strongly the next day. This was an intraday reversal, which is one of the warning signs that I believe is important, but breadth wasn't that bad with around 2,000 gainers to 5,400 decliners. Some of the very hot speculative action cooled off in the electric vehicle and Special Purpose Acquisition Company sectors, but traders are still looking for the next hot play. That speculative energy has not suddenly disappeared.
At this point, my game plan isn't to turn into a growling bear, but to tighten stops on positions, cut losers more aggressively, and be more selective with buys. We had some great speculative trading lately and it is important now to preserve the gains and keep accounts close to highs.
I have some low priced plays on the radar and expected there to continue to be some good dip-buying. The weakness today is actually healthy from a technical standpoint, and won't be a concern until some support comes into play. For the S&P 500 that means it could drop another 100 points without suffering much technical damage although it would hurt sentiment.
Stay opportunistic and don't focus too much on index direction. There is still quite a bit of positive action and a down day like this will make it easier to find entry points.
Have a good evening. I'll see you tomorrow