After six upside sessions and an indecisive close Friday, stocks started lower and by the close they certainly went their separate ways. The NYSE indices closed lower, SOX and NASDAQ 100 were positive, NASDAQ flat.
SP500 -15.96, -0.58%
NASDAQ -5.16, -0.07%
DJ30 -254.63, -1.01%
SP500 -0.68%
RUTX -0.88%
SOX +1.76%
NASDAQ 100 +0.13%
VOLUME: NYSE -6%, NASDAQ -7%.
ADVANCE/DECLINE: NYSE -2:1, NASDAQ -2:1. Small and midcaps leading the downside.
Mixed action, but the well known leaders such as AMZN, CRM, RHT, QRVO posted solid gains -- albeit off their session highs by the close. Those leaders tested the prior highs fully and faded some, but for the most part performed well.
The indices were down, up, then down. While they were unable to continue higher, the action Tuesday was not rollover action. Indeed, the charts look more like an ordinary pause. That makes two in a row and they could spend another session or two with this modest action and then break higher, beating the historical odds, or break lower, resuming the selloff.
SP500 is holding the 50 day EMA on light volume. NASDAQ is easing back to test its break higher. DJ30, the worst performer, faded to the 50 day EMA but volume was nothing different from recent trade, not bad given WMT's earnings miss and disappointing online sales. Its pattern is the most problematic of the group. On the other hand, SOX powered higher though it did stall at the November high, a key level potentially representing a left shoulder to a head and shoulders topping pattern. NASDAQ 100 is showing the same kind of lateral pattern as it tests the 5.5 session rise, showing lower and lower trade.
Thus, the session was perhaps disappointing in that it failed to hold a low to high move overall, but the action after a very sharp upside surge is consolidation action, exactly what you want to see after such a move. The worst action would be the sharp rollover, and this clearly was not the case. Now the market shows if it can hold the move as it digests the gains, and then whether it has the chops to move higher.
Rallying farther is a move that is somewhat against the odds, but not totally. Maybe the market wants to retrace 78% or even 100% of the prior move. It can do that and still fail, still following the historical pattern, just from a higher retracement level. Friday looked worrisome given the tombstone doji on the indices, but if they fight them off and move higher, we let AMZN, NFLX, QRVO, RHT, IMGN and others work, and we pick up some others that can make us some money on that move.
Of course, if you look at the 'gloomer' websites they proclaim the 'dead cat bounce dies.' That in itself is worth some more upside.
That said, today we were not buying because the market could not make up its mind between rallying and rolling over. We will be ready for each direction with plays that fit the move when it shows itself. If SP500 wants to move to the prior high, that is still another 135 points, enough to make some upside money.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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