Thursday's market action was notable for two interesting shifts.
The first was several very sharp intraday swings in the S&P 500. There were at least four major changes in market direction during the day with a net result of a small gain due to late strength.
The other notable action was the wide disparity between the DJIA, which was up about 0.8%, and the Russell 2000 ETF which was down about 0.5%.
Breadth was soundly negative with around 3,000 advancing issues to about 4,250 decliners. There were still over 375 stocks hitting new 12-month highs so there were good pockets of momentum despite the breadth.
What does this chaotic and inconsistent action tell us?
The most likely explanation is that market participants are feeling uncertain. There has been a strong run as the market has celebrated the dovish Fed and the indices are hitting new all-time highs, but earnings season is coming up and there are concerns about a slowing economy so maybe it is time to lock in some gains and raise some cash. In addition to this understandable uncertainty among human traders, we have the usual program trading pushing the market around in hopes of gaining an advantage.
The bears will tell us that this chaotic action is a sign that sentiment is shifting and a top is forming. That is possible, but is not a very good bet at this point. This is a market that needs some consolidation and is likely undergoing some rotation as a trading range develops. There is no major technical change right now. An increase in intraday volatility is a healthy way for the market to digest the recent action.
With Jerome Powell now out of the way, the focus will shift to earnings. Big banks are the first to report with Citigroup (C) kicking things off on Monday morning, followed by JPMorgan Chase (JPM) , Goldman Sachs (GS) and Wells Fargo (WFC) on Tuesday morning. (Citigroup, JPMorgan Chase and Goldman Sachs are holdings in Action Alerts PLUS.)
Typically a narrative or theme will develop as earnings season proceeds and that will help determine where things head from here. The bulls are in control with the help of a friendly Fed but earnings will tell the story about the economy.
Have a good evening. I'll see you Friday.