Stocks were energized early on, albeit quite modestly compared to Monday and Tuesday, as they continued to buy the rumor of the next event, the Trump tax plan roll out at 1:30ET. Investors got a taste of it pre-market when Mnuchin addressed a DC gathering and gave up some of the details. They seemed to like it as futures continued rising off a weaker open.
Stocks broke higher into midmorning, then, perhaps foreshadowing the afternoon session, sold off for 20 minutes, selling straight down. At 11:450 the bids returned and stocks recovered to the morning highs by mid-afternoon, jumping to the prior highs as Mnuchin et al released the details in a press conference. As quickly as stocks shot up to the morning highs they stalled and worked laterally into the last hour. Then the selling came and the indices sold straight down into the close, wiping out the session's gains.
SP500 -1.16, -0.05%
NASDAQ -0.26, -0.00%
DJ30 -21.03, -0.10%
SP400 0.03%
RUTX 0.59%
SOX -0.85%
Pretty classic buy on the rumor, sell the news scenario. Didn't happen on the French election because everyone was so puckered up fearing the communist and anti-EU Le Pen would walk away with the thing. Didn't happen, euphoria. For the tax plan everyone knew most of the details or at least good portions of them and they bought heading into the release of details.
What Wednesday showed was not a reversal, just a strong and somewhat unexpected move higher that needed a breather. I suppose you can read into the action that SP500 tested the early March high and fell to a tombstone doji with DJ30, SP400, SOX showing similar action. All touched at highs then somewhat stalled. At the same time, NASDAQ and RUTX, held highs, indeed RUTX moving to a higher high.
Interestingly, sentiment has swung from an imminent market crash to now the post-market shows talking about the risk being to the upside. That is the way it always is.
Of course, just as that emotion swings then the market is going to take a pause. A blast off of the pattern lows that reaches the prior highs usually encounters some resistance, pauses and stalls a bit, gets people worried about the likelihood of a continued move higher, they panic, then after the test the upside continues. The clouds part, the sky turns blue, happy days are here again. That is the cycle that repeats again and again.
On the day we did what we said we would do, i.e. pick up positions that had good positions and patterns, were not extended, and showed good moves. Thus we were buying later in the day when the moves showed they could hold: MEET, ZIOP, PCRX. There are a ton of earnings still to come with Thursday after the close a veritable earnings orgy for AMZN and others. We closed MLNX ahead of its earnings, and glad we did as it bombed lower. Also took some of MVIS ahead of its earnings in the morning. We let the rest of PENN work into tomorrow morning's earnings based upon WYNN's earnings results, though LVS' afterhours action is not the best; not the worst either.
Anyway, likely the indices stall for another session or two, get the market worried about failing at the old high, then continue upside. That is rather typical. It will also give some better entries on those stocks that surged on earnings, and we love buying off of the test of a nice breakout move. We will see if that plays out.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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