Another floundering session where stocks started lower on lower futures, sold into midday, then staged an afternoon session comeback. Problem is, they didn't come back all the way. They did, however, cut the losses and keep the same patterns, the same uptrends, in place. Marking time is kind of what the day looked like as the indices tested near support once more then rebounded, showing that level was still finding buyers for now. Not enough buyers to launch a new break higher, but enough to hold the indices steady while they brace for yet another 'most important' jobs report Friday.
SP500 -5.17, -0.24%
NASDAQ -9.77, -0.19%
DJ30 -53.42, -0.29%
SP400 -0.34%
RUTX -0.49%
SOX -0.07%
VOLUME: NYSE +40%, NASDAQ +10%. Impressive end of the month volume as NYSE indices tested lower then reversed nicely off the intraday lows. Typically that is not bad action as buyers emerge on the test of support. This time it was the month end likely driving the trade. It is interesting, however, that stocks did not drop on rising trade, or at least didn't stay at the lows on that higher volume.
A/D: NYSE -1.6:1, NASDAQ -1.7:1. The rebound kept breadth quite reasonable.
In the end another day of the slow, slow uptrend, lower but bouncing off support, keeping the trend going. Some stocks started to break, perhaps some of the less quality, but some of the stocks that were set up well (e.g. retail) had bad days. Other leader groups took a personal day, e.g. financials, semiconductors.
There is some nervousness ahead of the jobs report. With the triumvirate of Fed officials last week talking as if the criteria for a rate hike were met, that Friday report could go farther in convincing some market players the Fed is going to move. Thus far the Fed's threats have not stalled the uptrend, just slowed it. More 'evidence' of a 'robust' 1% growth economy could be all it takes to get them to bail along with the billionaires.
Then again you have Mr. Evans today talking about a US economy that has "slowed permanently" thanks to an aging US population and slowing productivity growth. "Secular Stagnation" is what Larry Summers calls this.
Once again you have the Fischer followers wanting a rate hike and they want it now, and on the other side of the table those Fed governors and presidents who feel no hike is necessary because absolutely nothing is going to happen. Evans appears to be very much on that side but he is not sitting at the table -- he is not a voting FOMC member right now.
Well, how about a combination? Nothing is going to happen to productivity or growth without policy, regulatory, and tax changes. As a next step, however, if policies are changed the Fed has to get rid of the free money that makes it more profitable to avoid investment altogether and instead just buy financial assets at ever-inflated prices -- thanks to that free money.
The upshot is jobs Friday could impact stocks either way near term. If 'strong' for a third month, the worry is the Fed hikes and impinges the free money. If it weakens substantially the worry is the Fed is hawkish in a weaker economic climate. I just LOVE having to deal with markets dominated by a confused Fed. Maybe it is not confused given it is run by an uber-dove, but it likes to act as if it is open to any policy that the data dictates.
As for the market, some tests of near support by the indices and a rebound to cut the losses. Trends in place but still going nowhere. Important leadership groups (financial, semiconductors) took a day off, some improving leadership groups sold (retail).
We closed positions that were having issues holding their patterns, preferring to close them now versus a selloff. Would rather have to get back in versus seeing a lot of positions fall if this low momentum, low volume move to highs by the indices gets a dose of news it does not like.
Did pick up a couple of positions, splitting on the upside/downside. HIMX to the upside, RHT downside. Having a bit more downside ahead of Friday morning is not a bad idea if the patterns are showing weakness.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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