Bounce off the intraday low… bounce in play?

The broad market creates what, could, should, might be the final leg lower in the current selling. At the open today the S&P 500 index dropped to 1837 down 1.2%, bounced to 1865 and the proceeded to progress towards 1820 as the low of the day and down nearly 3%. Then started the intraday reversal with the index climbing back to 1862 on the close and down only 0.8% on the day and set up to continue the bounce into tomorrow’s trading day. I stated last night that we were looking for one more burst to the downside and then a bounce. Let me be very clear… this is just a bounce. I am not convinced the selling is over looking forward. There are too many worries on the horizon to be done. They will not all be cleared up soon enough to avoid another wreck of some kind. As we always do… take it one day at a time and let the trend be your guide relative to the time frame you are trading.

Ebola surfaced again today as an issue that concerns traders. The second case announced in Texas and concern over how to deal with this issue in the US remains a big question along with a willingness to take a hard line stance on allowing flights into the country from specific destinations. Time will tell on this subject. A few words of warning on this topic, don’t chase stocks just because they may benefit from medical solution, garment solution or vaccine solution. There is enough speculation in life without adding this type of gambling to your portfolio.

The global picture continues to be the bigger concern, at least that is how analyst and the media portray the current sequence of events relative to the current and forecast economic status. That said, Europe, China and Russia are all in oversold conditions technically similar to the US markets. Thus, the bounce off the lows on Wednesday paralleled those in the US. Watch to see how all of this unfolds short term. There could be some upside trading opportunities, but the risk of the trades would be elevated based on those conditions.

Some important bounces on Wednesday to track¬†on Thursday… Russell 2000 small cap index closed up 1.1% on the day leading the race off the lows. Semiconductors ¬†closed up 0.5% on the day and setting a potential bottom reversal. The VIX index touched the 31 level intraday and closed at 26. Support is 17.5 and if the other indexes produce a rally this index will test back to this key support level going forward. Crude oil tested the $80 mark, but closed at $81.65 and basically flat on the day. Watching to see if any leadership develops or is this just a bounce as we referenced above.

Financials were the weakest link of the day as they fell 1.9% on the close, but were down more than 4% at one point in the trading day. They broke the 200 DMA, and volume was more than two times average on selling today. The cause… earnings were not up to expectations, but they weren’t awful either. JP Morgan and Goldman Sachs led the downside. Bank of America and Wells Fargo continue to struggle on earnings not being as good as some believed they would be. In all this sector remains easy to throw rocks at, but they are still undervalued relative to the longer term view. I was willing¬†to add some call options on the intraday reversal in the sector today to lower our cost on some positions as this all unfolds. If you are going to own the sector you will need to practice patience along with some¬†simple money management strategies to mitigate the risk as the longer term trend develops.

If there was ever a case for active portfolio management over passive it is corrections. Managing risk through these periods is the key to longer term success and peace of mind as an investor. Look for the opportunities in the bounce and then look for the short opportunities if the sellers return following bounce. One day at a time is all we can say for now.