Once again the curse of higher futures took its toll, but compared to two Tuesdays back, today, despite closing lower, was by comparison a piker. Decent upside pre-market as the dollar dove lower on Treasury Secretary Mnuchin's comment that "obviously a weaker dollar is good for us as it relates to trade and opportunities." Well, in the history of the world no country has ever devalued its currency to the point of prosperity. The key is to make your country so great with tax policy, reasonable regulation, growth, and opportunity that they beat down the door trying to get in. Then your currency takes care of itself. Indeed, the remarks were later clarified to mean the US still believes in the benefits of a strong dollar, but that these kind of dips in value occur and they can help short term. Okay, I guess that works.
Anyway, after a gap upside stocks rallied higher but peaked out just over an hour into the session. Dropped hard into 1:00ET, then recovered lost ground in the afternoon session, but the upside momentum fizzled in mid-afternoon and stocks slid sideways to the close. Could have been worse in terms of selling, but note that volume jumped up on both NYSE and NASDAQ. Volume jumping on high to low session indicates selling of shares. Not as intense as two Tuesdays back, but it is another day that highs were sold.
SP500 -1.59, -0.06%
NASDAQ -45.23, -0.61%
DJ30 41.31, 0.16%
SP400 -0.31
RUTX -0.69%
SOX -2.31%
VOLUME: Expanded farther above average on NASDAQ and NYSE.
Note how DJ30 was positive and SP500 was relatively much stronger than NASDAQ and NASDAQ 100. The latter led the prior two sessions and early Wednesday, then gave up it up in favor of the more industrial names. Anything major? Looks to be some rotation through the market again as discussed earlier this week.
Likely sounds as if I am barking at the moon given after the prior Tuesday the market shook it off and ran higher without another down session until today. You have to look at those kind of sessions in the aggregate, however, as they can be part of the topping process. The market can rise as it tops. Upside sessions are used to sell into on higher volume, followed by lower volume rises. If it goes on long enough the buyers eventually run out and the market tops and fades into a pullback or correction of some sort.
This current rally is just over three weeks old with just two sharper downside volume sessions. That is not a significant accumulation of distribution that suggests a sharp selloff. The indices are ripe for a test of this last leg higher, and indeed the recent leaders suffered a bit of downside including FAANG stocks. That is okay; one downside day on rising trade in the last seven is more an indication of a pullback after a 3 week run than a crash. If stocks cannot push higher again, we can take some more gain. We did take quite a bit again today (BLUE, SECO, MRO, MMM, HON, FFIV), but there are others we can bank as well. I do regret closing all of FFIV; it surprised with its earnings afterhours and spiked to 152, but then again, it dropped half of that with some volatility.
In any event, the gap, rally, selling on rising volume is another session to note (now 2 of them) along with the high bullishness, low bearishness, and the extension of this last run from September. It does not mean it is over, but it is a good time as earnings hit to log gain as we have done, and if any of the recent leaders struggle again Thursday, take some more gain on those.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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