Markets bounce, sell into negative territory to end the day?


The bounce off the lows started on Tuesday, but as the¬†headlines focused on, the rally sputtering from the intraday highs and closed in negative territory on the day. We can all spend time speculating on what we believe to be true going forward, but at times like this it is best to be quiet, observe what is taking place with the direction, volume and sentiment. The technical data is broken short term and it will take some time to put Humpty-Dumpty back together again. Patience is becoming my middle name these days and it isn’t such a bad place to be… cash is a sector remember.

On Tuesday the S&P 500 index gained more than 2.7% close down 1.3%. The Dow was up 2.7% closed down 1.3%. NASDAQ rose 2.7% intraday and closed down 0.4%. Russell 2000 was up 2.2%, but closed off 0.6%. Put this in perspective and move forward understanding that the sellers are still in control. This move shows that sell the rallies versus buy the dips is the new mode of managing money. Need to see how today unfolds relative to where we are and where we are going.

Gold (GLD) fell 1.3%, silver (SLV) also fell 1%, crude oil (USO) rose 2.8%, agriculture (DBA) was flat after a 2% jump early, base metals (DBB) gained 2.1%, and the dollar jumped 1.2% after breaking lower on Monday.

The market tallying by sector for the current trends for the ten sectors for S&P 500 index. No change to the downside momentum with the bounce on Tuesday. The tally stands at nine downside, zero upside and one sideways trend. This clearly puts the downtrend in play short term or the sellers have control of the direction. Watching how this all plays out, but still plenty of issues manage as we go forward.

Global markets followed the US with a bounce. Europe (IEV) was higher by 2%. China (FXI) gained 4.4% as the rate cuts and lower reserves restored some confidence. Emerging Markets (EEM) were up 3.5%. Japan (EWJ) was up 1.7%. The global markets continue to show downside pressure similar to the US markets as the outlook remains weak economically around the world.

Running the scans shows¬†the daily leaders as short gold miners, China internet, short treasury bonds, Europe, technology, Hong Kong and solar energy. Not exactly the leadership you want, but there were some bounce attempts in¬†social media, semiconductors, biotech, energy, and healthcare. It will take more than what transpired on Tuesday¬†to change the outlook near term… patience as we let this all unfold.

We remain mostly in cash with the cliff dive lower hitting stops. We posted short opportunities in the trading notes for those willing to accept the higher level of risk which have played out well. They remain in place with the intraday reversal lower keeps the downside a priority. The key is having a disciplined approach as it takes the guessing out of the equation and allows you to implement based on what is happening and managing the risk of the markets currently.

Being in cash is not a bad thing! In fact, around the half way market Tuesday when the reversal intraday started and the markets erased solid gains and ended in the red… cash looked even better. Holding cash as this unfolds is not a bad thing, less brain damage attempting to deal with the volatility and lack of a trend. Staying focused and disciplined is the key going forward. Patience please today definitely was not an all clear signal.

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