Follow the news and you will find the direction of the market for the day. However, look at the last six weeks of trading and you will see a choppy sideways trending chart with some daily volatility showing up. Lack of clarity remains the primary issue and that is defined by the combination of worries in play across the spectrum. We don’t need to rehash what those worries are, we just need to be aware that they are there and that the default for the market is to react and follow news events for as long as they remain in the headlines. The last two days were controlled by the negative sentiment relative to the global markets and economic growth, politics in Washington over taxation of corporations, Bombing Syria and the Fed. All news and speculation on issues we don’t control, can’t really control and that will be in play longer than they will remain in the headlines. Bottom line… today’s spark of buying was on the better-than-expected housing data. How long does that last? I will let you know in the morning about an hour prior to the markets open. Remember news created the chop we are experiencing and that is lasting about 3 days on either side of positive or negative.
Last night in the video update I showed a candle reversal setup on the NASDAQ index. It followed through today on the upside to provide the bounce off support and some breathing room for the index. The same was true for the Consumer Discretionary chart which also bounce back to resistance after a break support on Monday. The point being, watch for these signals to give you some insight on what may transpire going forward. The challenge now is for either of these to follow through tomorrow. Did the buyers expend all of their energy today or is there still more optimism in the tank for tomorrow. That is one point to watch as the trading day starts… follow through or reversal?
The volatility index reversed after hitting the 15 level on Tuesday at the close. It fell to 13.25 on the day and puts it back at the mid-range level of the current move. The buyers have not been able to sustain the optimism generated on any give day over the last four weeks and the trend in the volatility index remains on the upside. We would need to move back below 11.25 to break the current move higher in volatility.
The key on the day was the sales of new single-family homes jumping 18% in August and the fastest pace in six-years. This is a surprise first because the estimates were for 426,000 homes and it came in at 504,000! That will get everyone’s attention. The homebuilders sector managed a muted response of gaining 0.6% on the day. That lagged the broad market indexes. Buyers didn’t like it enough to buy into the homebuilders. Still worth watching to see how this unfolds and if the sector mounts a reversal short term.
Healthcare, consumers discretionary, basic materials and consumer durable were the upside leaders on the day. The leaders responded at support levels and assert renewal on the upside. The challenge is due to the lack of clarity we have to give it time to validate and determine if the outlook improves or not. I like anyone likes to see the upside find its footing at support, but we are heavily allocated to cash currently and willing to watch and see how this all unfolds. We will continue to take it one day at at time and let the leadership unfold up or down. We will let the charts and the sentiment tell us the direction relative to what is on the horizon… until then patience is the buzzword for me.