Futures were modestly weaker outside of NASDAQ and its large cap AAPL early assist, but even AAPL could not hold NASDAQ positive by the close. All indices but RUTX finished red, though mostly modest losses and not disrupting the recent action. What is that action? Basing as they bump along the bottom of a 3+ month ranges. Not breaking support, thus far unable to make a bounce or even make the attempts stick.
SP500 -19.13, -0.72%
NASDAQ -29.80, -0.42%
DJ30 -174.07, -0.72%
SP400 -0.20%
RUTX 0.29%
SOX -0.52%
NASDAQ 100 -0.56%
VOLUME: NYSE +16%, NASDAQ +12%. NYSE moved above average on the downside, similar to Monday trade. NASDAQ made it to average, rising on a downside session though AAPL was an upside volume hound.
As discussed in prior reports, this can be good action, i.e. working along support as the indices consolidate that strong run through January, grinding out investors until the sellers are out of the market. Then, if the economic future looks good enough, stocks can make a new break higher.
Right now that appears to be the question. Economic reports are decent but have slowed their gains. ISM April slipped as seen Tuesday. Construction in March fell 1.7% when it was expected to rise 0.5%. February was written down to -1.0% from +0.1%.
Wednesday ADP showed job April creation at 204K when 225K was expected. March was rewritten to 228K from 241K. Missing expectations, revising lower prior months. Not bad numbers, just not expanding and with the downside revisions you can see that the economists again missed the weakening. They always do; they mark expectations higher and higher because that is what the trend is. They have no predictive ability. Very much the same as weathermen in the summer. Same forecast day after day after day, and when strong thunderstorms crop up unexpectedly you get about 2 minutes notice.
Thus, there is a still slowing economic condition, a slow patch as we called it a couple of months back, and the market was projecting that with the January peak. On top of that you have a Fed that is in tightening mode even if it did not announce any additional rate hikes at today's conclusion of the FOMC's latest rate hike meeting. Nothing changed at that meeting; the Fed is still in tightening mode and will continue to do so even with the present soft patch.
The Fed sees the slowing as transitory and is still going to hike rates. It indicated it can be symmetric in its approach, i.e. it can be a little too soft on inflation and get away with it because it says there is no inflation though expectations are increasing. Oh, but we know there is inflation and has been for quite some time. Smaller sizes, same prices. Classic inflation. Now there is also price inflation to boot. But the Fed doesn't see it or does not want to see it. Therefore, it does not exist. Yeah, sure.
Thus, that leaves the stock indices working through the lateral base, ascertaining the economic future through tax cuts, potential tariffs, the impact of higher rates siphoning off some money from stocks, domestic politics in the form of midterm elections -- quite a lot of information or more accurately suppositions to consider and distill direction.
After Wednesday the prognosis is . . . no real change (as you surmised). Some areas are getting money based upon their patterns, some are losing money, many are just working along with the indices. I heard one commentator say AAPL had a 'breakaway gap' today. No it did not; it gapped higher but it did not make it to the top of its 6 month range. That is a gap into resistance, and that prior resistance often stymies further upside. Otherwise it would have gapped right on through.
The inability to hold another high was of course disappointing to the bulls but not anything new as they work through the bases. In other words, the same action continues as the market looks for a catalyst upside or downside. The frustrating thing for the upside is that earnings are good, individual stocks are rewarded, at least for awhile, but the overall market cannot take advantage of good news. Lack of commitment upside, but for now, as has been the case, lack of commitment from the sellers as well. Wearing investors out, right?
Still some areas that sport good bases, but thus far not doing a lot with them. We continue to look at those and other areas that are getting some money pushed their way and enjoy some good upside pops. Most of the market, of course, remains, in a word, sluggish.
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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