Third-quarter earnings season is still at an early stage, but so far, there has been a mixed reaction to reports, and hopes that low expectations might drive sustained buying have not panned out. There have been some solid reports such as Netflix (NFLX) , IBM (IBM) , and ASML Holding (ASML) , but they are not having much impact on overall market sentiment.
Tesla (TSLA) will be an interesting test of the market mood on Thursday. The report was OK but did not surpass revenue or earnings expectations. Guidance is good, and Elon Musk is promotional but will buyers believe that they need to take advantage of softness in this difficult market environment?
The market is also facing significant headwinds as bond yields continue to risk. The iShares 20+ Year Treasury Bond Fund (TLT) is making new lows and hitting its lowest levels since 2011. Higher bond yields are driving strength in the dollar, which is at its highest level in decades. The strong dollar is a problem for multi-national stocks since their products are now much more expensive in terms of foreign currencies.
Another issue is that the market is ignoring President Biden's efforts to pressure oil prices. Oil closed higher following the announcement of the release of more reserves from the Strategic Petroleum Reserve, and many of the individual stocks in the sector showed strong technical action.
Technical conditions also remain problematic. The most notable action on Wednesday was poor breadth and weakness in small-cap stocks. The Russell 2000 ETF (IWM) was the laggard, with a decline of 1.7%, and the speculative biotechnology sector (IBB) was very poor, with a drop of 3.4%.
There is very limited stock-picking taking place in this market, although short-term traders are focused on some earnings plays and are aggressive with oil and energy.
It is a bear market, and the best course of action remains to trade in very short time frames and maintain high cash levels. Earnings season really starts to heat up next week, and we will have a much better opportunity to determine if it can help drive a better market rebound.