The best indicator that a market has found a tradable low is when it rallies on bad news.
The ISM Services report Thursday morning was obviously poor and was not anticipated, yet the buyers jumped in and now have the indices hitting intraday highs. Breadth has moved from 2 to 1 negative to about 4 to 3 positive and traders are hunting for ways to put some capital to work.
While it would be premature to bet on a lasting market low at this point the good news is that this sort of action gives us some trading parameters to work with. We have the low at 2856 today to serve as keep support for the S&P 500 now and then significant overhead at the gap created Wednesday morning at 2924. That is a big range and it is likely we see it develop further as we await the China trade negotiations next week.
My main focus now is to watch for a better environment for stock-picking to develop. I want to focus on finding individual stocks that have some special potential but we need the right market for that. Typically when we have the sort of corrective action we have seen recently, stocks move in tandem. Fundamentals don't matter. Everything is sold as a group and then bounces as a group.
Once the bigger macro movement calms down there usually is a move toward identifying individual stocks that may offer better returns. Those charts will develop quickly and good stock-picking will be rewarded.
I focus on making most of my money by stock-picking rather than market timing although there is a substantial overlap between the two. It is when stock-picking turns favorable that I put big chunks of cash to work. We aren't there yet, although the conditions are developing and I'm looking harder for potential candidates.
The indices need a good close Thursday to keep the momentum going but it looks like we have some trading range action developing, which will be a helpful first step for the market.