Most days premarket trade flow consists of a few ETF’s, maybe a sector and/or selected stock(s) on news. Today it looked busier than most lunch hours trading as the trading platform lit up with action coming from every direction into 'very' green. A carnival atmosphere...quite out of hand and a little fishy to a Bull. The gut feeling was if this exuberance continued any higher, approx SPX940’s into and beyond the opening bell, we’d possibly get a blow off top. This is nothing we want to see!. Definitely a steep decline did occur after the market drove higher into the bell, a -350 DOW, a -70 NASD from day high to low is not pretty, but this wasn’t a blow off top as the SPX didn’t get any loftier than 930 as in premkt and the selling was quite orderly throughout the day and importantly we closed off the lows today and yesterdays lows on SPX to 907. Remember, we recently said there were nice bids pushing the market just over the 900SPX futs area the other day, well, today this 'strong hand' action gave glimpses of the underlying bid around this level as we held pretty well here all day. Simply, we think the market blew off some much needed steam without blowing off it’s top party hat. SPX900 , hopefully it will become a psychological level, if we close lower in the short term it will probably signal a start to a civil correction. No matter what you call or will call today's action days later if it becomes a top to the recent rally, a steep sell off, is a sell off that hits the recent high beta flyers the hardest. Hopefully our premkt note on top of the Journal saved you some dollars or even made you some more off the early gap upside to sell into.
At this point the 900SPX should be looked as an opportunity to buy the dip. Bulls don't diet. The question is what groups(s). Now that the stress test is seemingly resolved tonight, we can’t see the banks- brokers leading us higher just yet. The worst part today despite all the ‘positive’ noise on CNBC to it..was CSCO linked. Our view that the market may see the ‘no growth on horizon’ played out!. As we alluded to yesterday, the market may have had enough of ‘stabilization’ buzz words and wants to hear growth juice. It's quite funny to see this stabilization ringtone all of a sudden prevail in a sell off after we use it last night. Stabilization is priced in now, it's old, especially in the tech group. A worry might be if it is going to spread to eg. commodities as the question becomes not what have you done for me lately, but what will we you do for me going forward.
We don’t like the action in (tech) the last 2 days (below 200ma now) and if we don’t have financials or the techs to lead, who will?. Energy is a big % of the SP, but crude is coming up to resistance. Do we really want to see it breakout here?. Well, maybe as traders with potentially nothing to do say yes, but, ideally nobody wants to see higher costs coming at this stage of a recovery.
We think the best is let the weekend come in peace and research what we really want to hold going forward. The decision will be probably come to recent earnings plays in the not-so volatile sectors.
Have a good one!