The broad market indexes sold lower on the day defining the downside as an option again, but we have seen this before. As I stated several times the last few weeks, the lack of conviction on directional moves remains a trademark of this current sideways trend. Each time the trend looks ready to continue higher or reverse lower, the opposite side of the trade steps in and creates havoc and confusion. I am not saying that is what Thursday’s trading was all about, but we have to watch to see how it unfolds without a bias or we may end up on the wrong side of the trade. Patience remains a key strategy for our approach to the current environment. I suggested this approach in April when SPY was near the $208 mark… here it is August and SPY is near the $208 mark? Go figure, there has been plenty of movement up and down, but no progress to show for it in either direction. Thus, Patience avoids brain damage to our trading psyche and allows to look for the next opportunity without fear of additional damage to our psyche or brain.
The obvious desire today would be to define why the NASDAQ fell more than two percent intraday? The simple answer is the bids withdrew opening a hole in the floor that the index fell through and investors will now look for clarity to define what unfolds from here. In both instances we are speculating based on our beliefs and that puts us in a precarious position about buying or selling. Thus… patience is the essence of what we believe currently without bias on either side of the trade. Patience to see if the sellers are willing to take the indexes through support and confirm a trend on the downside. Patience to see if the buyers are still willing to step in at key support levels and keep sideways to upside trends in place. We simply need more input at this point for the trend to unfold.
Two indications of concerns rising among investors today, first the drop in interest rates as money rotates into bonds again. Second, the VIX index moved back above the 14 mark off the near term lows at 11.7 validating the anxiety created in today’s selling. Neither is conclusive, but both show a shift in attitude towards the upside of the market at least for today. As stated above we will need more data to determine the conclusion.
Big shift in sentiment towards the consumer sector (XLY) following Disney (DIS) earnings. The forward guidance by Disney relative to the revenue from ESPN and other media components sent the sector spinning lower. The break above $77.25 offered upside optimism about the consumer back in June. The consistent move higher has been a big plus for the sector, but the 1.6% declined today erased a lot of the hard work in the broad sector. XRT moved back below the $97.25 support. PEJ dropped 2.2% and DJ Media sector fell 2.8%, all weighing down the consumer sector as a whole. This shift in sentiment towards the consumer could be game changing if it prevails near term. This is one key area to watch.
We can measure each sector and invest accordingly, but the broad index trends will shift when the trends all lean in the same direction. The current tally is four sectors in an uptrend, four sectors in a downtrend, and two sectors in a sideways trend. Thus, the broad index is moving sideways. While today was headline worthy relative to the move, it did nothing to change the overall direction. It put investors on notice, raised the speculation level and the sentiment on the day, but relative to the trend it was a push. That is an important fact as it keeps us from getting caught up in the manure slinging for the day. In other words we will have to practice patience.
Tomorrow is the jobs report and with the ADP numbers disappointing the expectation is now that the jobs report will disappoint. We will know soon enough. The reaction to the data will set the tone for the day, but may well offer a near term catalyst for stocks… patience is still the goal.