Very quiet session today, but notable in that modest good news on China trade did not simulate the market. That puts it in a position to breakdown further. Ignoring good news is a bearish short-term sign, writes Gene Inger Thursday. He's presenting at MoneyShow Orlando.
Wednesday the S&P 500 (SPX) worked back into congestion at the lower resistance levels although it could not sustain the moves (not a surprise).
Reuters: Wall Street edges lower Thursday as trade-fueled rally loses steam.
The trade/China picture had a sigh of relief for the moment anyway (and we suspect it progresses overall with emotional or intervening hiccups, one which occurred after the close Wednesday. The Fed may be less of a contention just ahead with a realization that the corporate sector is of greater concern in the year ahead.
Meanwhile the algo-driven declines did awaken traders to many qualities of the technical picture that have telegraphed warnings for months.
Largely it relates to the perils of complacent passive investing, and concentration in both ETFs and indexes in a way that creates uniform behavior both up and down and tends to exacerbate moves due to less individual issue focus.
I’ve outlined these concerns all year including the masking of distributionby the S&P and Dow for months. That is why some stocks (downtrodden and tax loss sales) potentially fully-corrected well before the obvious breaks in the senior indexes became visible (or got acknowledged) by pundits and one-way-oriented managers.
Now they concede what already happened in the course of this year, which I contended topped way back in late January.
That matters because it suggests some stocks either already bottomed with the multi-month rotating rinse & repeat internal bear market or have just minor erosion risk remaining with big picture index plunges.
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We’ve had an intraweek recovery from a minor washout below prior S&P lows and the tide had a chance to recover a bit from a seasonal perspective although erratically as we've outlined this week. (Too many new bears out there and that meant fuel to rally temporarily with any spark but still lacking sustainability.)
At this point I suspect there’s unfinished business on the downside. I also believe it would be unusual (and not essential) to see a big resumption this late in the year. At the same time, it’s premature to express optimism about the general market beyond perhaps some relief at the start of the year. (And that is especially in the previously beaten-down stocks.)
If the market were to implode, here that would be seasonally unprecedented; the S&P is begging for capitulation.
So, we allow for markets responding to news (good being good and bad being bad) or even perceptions. But we’re unconvinced as it’s just crowded short-side moves that run-up and falter. That means unsettled.
