Ominous signals rear it's ugly head...

Market proved today it’s what’s inside that counts!.  If you’re feeling sickly internally as pointed out by yesterday‘s ''ominous signals" of widespread deterioration despite a relatively flat SPX,  it will come to surface eventually manifesting into a bad rash, spreading all over the market.

Typically, on a day like today, investors will draw up all kinds of negative speculation on how much worse this market can get.   Today, might’ve been déjà vu as it had a remnants of October/ November 2008 in it.   Oh yes, that feeling is simply normal given the kind of damage this market has endured in such a short time.    You can't blame people for having this kind of talk/ thoughts because you tend to extrapolate your assumption after a series of down days.   Fortunately,  we have seen this many times before it's no different this time and it‘s definitely not Oct/Nov 2008.   Still,  we don't expect the same type of reversal as seen most recently in early September and October to new highs in early November.  Sentiment has changed and it needs to consolidate.  Underlying bid is in locking gains menality and will likely continue if we move upwards giving further moves resistance.
   
When you are dealing with a hard and fast correction, and believe us, we are going through one, things tend to get negative in a hurry and it stirs up people's emotion.   The kind of emotion, we are talking about are frustration and fear.    However, trust us, this is nothing compare to what took place late last year.    So, lets just be all rational about this correction.     Good thing is,  the correction will end at some point and more likely than not, we'd get a bounce.     We aren't sure we'd like to play a bounce, but we do know that at some point, some plays are looking very attractive as a long.     SPX took out its 50 MA today and it closed way below the previous support(1060-1058) we have discussed.    Of course, tomorrow's big GDP report may be a driving force for this market,  but we think much of the damage has already been done to this market because GS revised down today to 2.7  and investors remember their NFP employment#  revision that was on the money recently.  Investors/ traders also remember the bounce that ensued after NFP#.    If this GDP is priced in now,  we should see a bounce emerge as low 1040’s  have many short term TA aspects to it.    Still,  any start to a bounce won't be the usual underlying bid  we`ve relied on weakness for months,  it will be a TA trading bid.   This has changed for now as the underlying`bid is turned on protecting gains as we`re seeing by Hf/MF's fiscal yr selling.


So far, earning expectation has been holding up and the only thing that's taken a step back are the stock prices.  This is perfectly understandable as many plays, big or small, have taken on some big gains since the summer.     For those stocks that did not meet the earning expectation, the consequence is loud and clear.  Today, nobody discussed the positive comments out of V on the consumer and NSC(rail) on a bottom.   

There's currently lots of noise out there about this market as we had a “Bear cocktail“  blended early in the week.   Some analysts are still calling for some optimistic target on SPX by the end of year, while others simply don't really know what's going on.   We also have this seemingly unstoppable rally in USD that's simply putting more pressure onto the equity market.    The truth is, we are dealing with a correction right now after a long rally and that's about it.  Some facts are emerging during the first half of this earning period.    Bigger cap stocks are outperforming the smaller ones both in terms of their earning reports and stock reaction.      Not all companies are enjoying this economic recovery.     Therefore, we do have to take our time to separate the winners from loser when it comes to stepping back into this market.

Bigger the safer?   It seems that's the kind of message we are getting from the market last few days.   Stocks like AMZN  & MSFT  have been outperforming others, on a relative term.    Commodity stocks are under tremendous pressure due to USD and some poor forecasts of some key companies.    Small cap action has been dismal and has led this market down internally.    The conclusion for us is that we'd stick to bigger caps when we start to step back into this market.   So, there's no need to feel depressed or bad about this market because it will eventually be business as usual.