While it looked like the market was having a bit of trouble making any kind of rebound through out most of the day, it did manage to climb up and close near the best level of the session at the end of day. However, there's really nothing to cheer about because we still ended down almost 15 pts on SPX and closed below 1001. The Brazil ‘threat’ noted before the trading day pumped the USD at the open (unexpected) as the futures did not point to such and we went through a sinkhole to about 1090 in the first 15 minutes. Another big catalyst was the BofA downgrade of chips which is really no surprise because their reason was speculated right after INTC’s report.
Recall, many times, we’ve said when Bulls are hit by a fast and deep sell off, they do not put an underlying bid/ support until things cool and settle down. A technical breakdown like today is not the same as the previous days shallow dips that are bought up. Note, there was not a lot of individual stock hits, usually means mostly a ‘futures’ ETF technical fast money trade. This means holders were not dumping stock.
Yes, we closed below the 1001 level which invites room for potential further downside. Will today's move signal some more turbulent days ahead? We'd think unlikely as today's move may have taken most of short term excessive bullishness down to a reasonable level. Still, we'd preferred to have tested 1085.
After today, it does feel that we are not obligated to chase some plays at an extremely uncomfortable level anymore. In a way, it's somewhat of a relief to see this market come down once in a while. Remember, healthy bulls runs will consist of many up days and a few down days. Even though the down days may be dramatic in action, it is a natural occurrence as we‘ve all witnessed. What we have to do now is to take advantage of some of the pullback to add to our existing position or start new positions on those plays we'd feel uncomfortable to play a couple of days ago.
Story is the same and strategy is no different. There may be some headlines out there blaming this and that for this particular day but end of day it’s really not relevant as market will forget and move on to new headline. Also, everytime we have a down day, you'd hear more cautious comments from analysts, but they always quickly disappear once the market resumes the uptrend. Like we said in previous Journals, we strongly feel that investors, and especially institutional investors, are locked in their mind to bring this market to a higher level to finish up their year. There's really not many potential negative events between now and end of this year that can come in and change the amount of bullishness we have out there. The once in a while profit taking days are merely acting as a reminder that this is still a risky business.
As far as plays wise, of course, the safest thing to add on a day like today are the mega caps like MSFT and AMZN. Still, we aren't excluding smaller plays that have taken hits lately like PEET CTRP GMCR (new adds to DJIM, AIXG RINO ) to our dip list either because we know what they are capable of on a good day(s). Bottom line, tomorrow is the option expiry day for the month and there isn't anything on the Economic calendar. A close over 1093 escapes a downside reversal week, break of 1085 and we may eventually be testing the gap of 1070-1072 discussed a while back. We’d watch 1085 to bring out the underlying bid if it has time to flatline there and not be reached because of a negative catalyst.
Yesterday's alert 'short' on shippers produced some ugliness in the group eg. GNK -11% EGLE -13% EXM -12% DSX -7%, we would stay clear of being long and/ or anticipating bounce in this group for the short term.