Back and forth, up and down, but in a pretty narrow range and on lower volume. The buyers propped up futures pre-market and even tried to rally stocks through the first hour. Didn't take. Stocks sold back to session lows in late afternoon. Weaker overall action, but it was in no way a serious break lower. Indeed, the stock indices closed mixed and close to the flat line.
SP500 -1.25, -0.06%
NASDAQ 18.52, 0.36%
DJ30 -31.98, -0.18%
SP400 -0.30%
RUTX -0.06%
SOX 0.90%
VOLUME: NYSE -18%, NASDAQ -2%. Still above average volume on both exchanges but lower as the indices slow their descent after 4 sessions of struggle.
A/D: NYSE -1.1:1, NASDAQ just barely negative. As with the indices, a standoff of sorts.
So, you have the buyers trying their hand but failing, sellers entering and selling, but in the end, neither had the advantage. A stalemate on lower trade with SP500 holding support at 2120 for a third session. The Fed meets next week, delivering its September verdict Wednesday afternoon. Uncertainty reigns again ahead of that meeting, and uncertainty can lead to further downside.
That was not the case Wednesday overall, but the upside was equally inept even with AAPL and its supporting cast posting nice gains thanks to reports of good iPhone 7 orders. Oh, and perhaps, just perhaps, AAPL's success has something to do with Samsung's Galaxy problems. Sure the new Apple operating system has bugs causing iPhones, tablets and other devices to freeze, but that sure beats the flash fires and explosions burning things and people.
Without AAPL's 3+% gain (a Dow component, SP500 component, and of course NASDAQ 100 component) don't look quite so good. But even without AAPL, they didn't look that bad. The sellers had a shot, couldn't push it. Once again the market sets up the downside, breaks to the downside, has plenty of reasons to continue to the downside, but just hasn't pushed the knife in as of yet.
The setup has a bearish look, however. NASDAQ and SOX look as if they are next to sell and follow the other large cap indices a bit lower. Ironically, SP500, DJ30, and SP400 are at some support and could try a bounce. Such is the life of a market wanting to sell yet knows the central banks don't want to let it sell.
That said, if things were normal and there were no Fed in the wings next week, it still looks as if the indices sell from here. Further, given the uncertainty as to the FOMC decision next week, near term there could be some more downside.
But, and a big but, that raises the question I brought up last night and again in an alert today: how can the market really sell off if the Fed and other major central banks are dead set on avoiding a selloff ahead of the November election? It would take some pretty incredibly bad numbers or events to do that and you know the same people not wanting a selloff are going to make sure those numbers are at the least palatable.
In January and February I believe the banks conducted an experiment to see if the indices could hold their own given the fiction of the improving economy. They couldn't and a startled Janet Yellen jumped into action (okay, maybe not jumped but increased her pace), calling the BOE and giving orders to buy, doing the same to Draghi the next session. My guess is that given the timing of the election, Yellen will try to avoid even the appearance of market weakness. Thus some limited selling could occur before the FOMC decision, but the Fed, if it can, does not want to let anything get out of hand.
Okay, that is a lot of speculation about intent, possible actions, etc. Interesting but doesn't mean the market follows this at all. The market is weaker right now, still looks wobbly, but still you have to look at shorter term plays given the central bank overlay to any selloff. Downside plays are typically shorter term anyway as fear spikes, they drop 2 to 3 legs, then level out and start to base, particularly with a central bank backstop.
With that lay of the land, we continued to let the plays work and also picked up some MSFT puts as it looks overall bearish. There is more upside/downside balance in our portfolio right now with the upside leadership we have holding up rather well even as the downside continues to weaken. As a market turns lower of a run or higher off a decline you see this kind of bifurcation. We are attempting to make some money on the drop ahead of the FOMC, realizing that a continued dovish Fed would provide upside recovery from any selloff.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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