Market Alert - The Close

And then there was one. SOX remains the last trend holder.

Wednesday stocks tried to rally off a slightly lower open and indeed did move up in the first half hour. That was it. Stocks turned over and sold off into mid-afternoon. They did recover in the afternoon up to the start of the last hour after the FOMC minutes showed a Fed leaning even more toward that December rate hike. No surprises, the market liked no surprises. Even so, stocks weakened and sold back in the last hour near session lows. Afterhours, SPY continues trading lower, undercutting the midday low Wednesday. Hey, at least Wednesday they had a half hour of upside before flipping.

The session was not a total crushing. It was not pretty, but on the positive side it was not a bloodbath. Volume even contracted some on the NYSE.

SP500 -13.78, -0.65%
NASDAQ -48.01, -0.93%
DJ30 -77.46, -0.43%
SP400 -0.98%
RUTX -1.31%
SOX -0.68%

VOLUME: NYSE -5%, NASDAQ +9%. NASDAQ trade jumped as it broke support. NYSE volume, after breaks already in the bank by SP400, RUTX, and SP500, actually backed off a bit. Still above average on both exchanges. Elevated volume on the selling as stocks are overall sold more than they are being bought.

A/D: NYSE -3.2:1, NASDAQ -2.8:1. Not heavy, extreme breadth. That is worse than having a lot of selling. At least at extreme levels you can start looking for a rebound.

Okay, so the nice comments are out. Unlike Tuesday, stocks sold and did not recover. Indeed this time an afternoon bounce failed and stocks faded in the last half hour back to near session lows.

Growth led the decline with RUTX, SP400 and NASDAQ losing 1% or more. RUTX and SP400 continued their drives lower after crashing the September low sessions back.

NASDAQ put an exclamation point on its trend break, putting in a lower closing low and closing below the September closing low.

DJ30 gave up the September low it bounced up off of Tuesday.

SP500 fell farther below the September low.

SOX remained the lone holdout, selling to the 50 day SMA on the close, hanging onto its trend. As noted last night, however, it is on the same path as NASDAQ before it broke its trend and SP400 and RUTX before that.

The market has rolled over in terms of the majority of stocks. SP500 is getting to the point where another solid downside move puts it at the 200 day SMA, a place where it should attempt a bounce. SP400 is just over that level as is RUTX. If they all 3 hit it and DJ30 makes a sharp drop, they likely are all oversold enough for the stock market to put in an oversold bounce.

Thus we let downside positions work, looking for another good push lower toward the 200 day SMA to trigger a bounce. We want to use that selloff to take some gain on downside positions such as more on SPY and likely some on DIA and others. We closed some upside plays because even though a relief bounce likely looms in the not too distant future, we didn't want to chance more downside and then hope those stocks rebound.

Okay, so Wednesday was not a disaster. It was, however, a continuation of what the indices had set up off the September or October high (depending upon which index), those rounded tops that then broke lower. It is a technical move in our book versus some reaction over the past week to polls.

Indeed, I heard another person or two on the financial stations state, in addition to the anchors that say every 15 minutes, stocks are selling because of the election polls and that if one side is elected there will be blood on Wall Street while if the other is elected, not so much. What they are saying is that the policies to be promulgated would cause the market to crash.

I will say this much in response, because it is what I have said all along on this stock rise, long before this election contest and thus does not make a comment about one candidate or the other, just what the problem is and what needs to be done.

The market we have is built upon Fed stimulus that has inflated asset prices and allowed companies to buy back stock and the stock of other companies with low to no cost money. The market gain is not built upon robust business activity, investment, or strong jobs with high wages. Those remain pathetically low in this recovery cycle. Pathetically low.

Thus, YES, if you want to change the policies of easy money used to inflate financial assets beyond any rational measure of earnings-based worth then that WILL cause a revaluation of financial assets from being based upon easy money price inflation back to real output/earnings based valuations.

The point: this MUST be done at some point and it is far better that we do it by our decision to end the easy money cycle and instead implement growth inducing policies. Then we can blunt the impact of the cessation of easy money by making it very conducive to invest that money into capital assets and programs that will grow business, grow earnings, and thus grow quality jobs. The alternative? Do nothing and then have the world market DICTATE the collapse of asset values at a time when we can ill afford it. As the old Fram oil filter commercial used to say, you can pay me know (holding up the filter), or you can pay me later (pointing to the car with the blown engine).

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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