Stocks rally, but downside pressure remains in place. The gain of nearly 1.4% in the broad indexes on Thursday was a positive relief from the selling that started the week, but there is still a smell of selling in the air. Call if profit taking or a pullback, either way, the sentiment/conviction towards buying stocks is lacking. The market has dropped 3.5% off the high and bounced nearly 2% off the low with higher volume on the selling than the buying. The issue of clarity is still in play following the economic reports. Inflation data was slightly higher than expected, jobless claims jumped ahead of expectations and import prices were up on oil. All of this bears watching short term.
Is the trend shift to sell the rallies versus buy on the dips? IF… that is true we are entering the next phase of the current trend – sideways. You can likely throw in some volatility for good measure. I don’t like predicting market direction, but looking at the data and what is likely to happen keeps our expectation in line with our stops or risk management of our portfolio. The selling is not likely over and the 1340 level of support is still in play from my view. This gives us a trading range moving forward of 1340 – 1415. We will watch to see how it plays out.
Earnings are at the forefront currently and Google decided to mix it up with a non-voting stock split? The numbers were slightly ahead of expectations on the quarter, but all the talk is about the non-voting stock creation. It could take positive news and turn it into a negative short term for the stock as investors react. The reports from the banking sector start today and are of interest to many. JP Morgan and Wells Fargo announce this morning and I am interested to see if they maintain their leadership. The banks have dropped nearly 6% in the pullback, but are key to the leadership of the broad markets if they are to continue any type of uptrend.
Energy remains in the bottom of the sectors despite the bounce of 2.1% on Thursday. The sector has fallen 8.5% from the February highs and remains in a short term downtrend. The price of crude has stalled near the $102 mark and the uncertainty of Europe and slowing growth in China are all overhangs relative to the sectors outlook. Still not a buyer at these levels and I would expect the sector to be a leader on the downside if the market continue to pullback near term.
As we conclude the trading week look for more mixed activity. The bank earnings before the bell will set the tone along with the overnight response to the Google news. Be patient and remain focused as direction remains mixed or sideways. We have significant cash as a result of hitting stops, but that is not a bad thing either. As the uncertainty settles there will be plenty of opportunities to put money to work. Patience has never been a strong suit for investors, but one to practice near term.