A deal to extend the debt ceiling issue until December and a strong bounce in the indexes after a weak open have helped to clear the air and has stocks looking perky in the early going Thursday.
The gloom and doom were weighing heavily on the market Wednesday morning reflecting a spike in energy costs, higher interest rates, and the chaos in Washington. Energy and bonds reversed, however, and the contentious debate in Washington finally produced some progress.
Breadth was still quite poor but what was most interesting about the trading action on Wednesday was that high-beta growth names were the leaders. The FATMAAN stocks and many high P/E technology names have been struggling due to concerns about interest rates, but they attracted strong interest following weak opens.
It is still premature to call a market bottom, but intraday reversals and strong closes are key factors at market turns. What is needed now is some follow-through. The indexes and key stocks need some higher highs and must stay above recent lows. That will likely be the foundation for more upside as we head into third-quarter earnings reports in the next couple of weeks.
My market thesis for a while now has been that we have been undergoing a healthy correction that will eventually lead to a good setup for more aggressive trading as we head into earnings and the fourth quarter. I do not know how long or how deep this correction will go, but it is developing in a way that makes me feel we are close to a point where the charts will start to offer better entry points.
It is important to recognize that there is still a wide disparity between various sectors of the market, and this will present some rotational action as we move forward, but therein lies some of the better opportunities.
I continue to be optimistic about the way things are developing. The action Wednesday was positive, but we need more of it. It is still too early to conclude that the worst is over, but it is looking brighter. Another pullback would probably set the stage for a bottom.
We have a positive start Thursday morning, which hasn't been a good omen recently, but the key will be the willingness to buy a dip if the opening highs do not hold.