No matter what may be the cause for today's 200 point reversal , the fact is such a reversal intraday move is never bullish short term. Most are blaming the strength in USD/ Euro dipping fast below $1.50 (we watch FXE), some the recent failed advancement of market off strong earnings >1000SPX, some the break of the transports uptrend, some a possible BAC secondary, some Wash. D.C, some their dog!. We have it all, today!. Put it all in a blender and you have a “Bear cocktail”, every media guru tonight (even Bulls), is getting an early start dressing up as a Bear for Halloween. In any case, we feel having a further pullback of this market isn't a bad thing at all, we're hardly negative as all seemingly became today.
Morning rush was simply a mutiny away from riskier assets, but rest of day was hardly panic. This possible move is what we’ve been preparing for since Oct 15 /1st break of Dow10K saying the obstacle would be SPX 1K. So far, it's a filing and backing move that will/ needs to play out. Technically, we have closed below the SPX gap support which invites more filing and backing in days to come to next gap SPX 1058-1060.
As far as this market is concerned, a lot of funds are sitting with a healthy gain on the year and for many HF’s the year end is coming up. This round of earning is giving them a good excuse to lock in some gains. (We also know of a tier 1 institution that made a 2-5% USD correction call beginning November over the weekend and this may have led their institutional clients to initiate it before months end.)
We still believe there's going to be some excellent underlying bids sooner than later. Why? This market is no longer working on the foundation of fear, but it's on a solid foundation of optimism. Unless of course, you’re a losing Bear since March, who is saying tonight that this correction is the ‘big one‘. There is a sense, evidence of calmness in the markets. The recovery is working as intended and we know this economic cycle will last a long time, but, rebuilding this market will take time after 2 years of turbulence. A declining $USD has been a vote of confidence from the market of a global recovery and so it will remain an important catalyst. Corporate earnings are improving for bigger caps is a sure sign that investors look for when it comes to allocating their funds. We'd love to see some plays at lower levels anyways. Frankly, it makes trading easier when we are dealing at a better valuation. If this market keeps on going the way it had been last couple of months, it would only setup a huge disappoint down the road because no company can meet the sort of expectation investors are hoping for after their stock price rise a further a >20%. We aren't in an economic expansion era, by the way. It's going to take some time just to return us into a "normal" economic environment.
In after AMC, we were anticipating a report, but it became irrelevant by the close. We are talking the BIDU report, which did not inspire a good reaction due to its lacklustre guidance. This is particularly interesting as we are able to see which companies can execute and which companies can’t in the same competitive sector. BIDU does not come close to being a Chinese Google because their operating model is just so different even though they are both considered "search engines".
Going forward, be careful picking stuff to buy off a potential pullback. As we’ve said many times before, the Bulls are patient bunch and will always wait for things to calm down after a drastic move such as today‘s. Stick to bigger names as we said yesterday, avoiding high beta cheaper stocks. Today, we saw many micro-mid-some small caps get drilled that have been outperforming. Stocks that have upcoming reports performed best today, so have a look at our earnings list for possible quick trades into reports. Also, be careful jumping into excellent reports with both feet immediately. Wait for reaction to confirm buyers will still eat up growth stocks.