Stock Market Sees Nice Bounce But Traders Can’t Get Comfortable
After a morning rally the action was slow for the rest of the day, but the market closed near the highs and that is a good sign. Breadth was strong at 67% positive but there were not a lot of big movers and around 185 names hit new 12-month lows.
The Nasdaq 100 ($QQQ) added only 0.2% while the S&P 500 ($SPY) gained 0.4%, but the Russell 2000 ($IWM) jumped 1.3%. Small caps led on the way down for three days and they led on the way back up on Wednesday. Bonds managed a small bounce but oil was higher again. Bonds are going to determine where this market is headed.
Nothing Here Looks Like a Bottom
Nothing in this action looks like a bottom. It could be one, but it is premature to jump to that conclusion, especially with important jobs data arriving over the next two days. What we had was a relief bounce that held. That is better than a relief bounce that faded, and the close near the highs means the institutional money that tends to act late in the day did not sell into the strength. But a bottom is a process rather than an event, and one session that stops the bleeding is just the first step of the process. There is much more work to do.
The traditional pattern is that bounces run into overhead resistance from investors who want to get back to breakeven and exit. The three days of selling created plenty of those investors. Whether they sell into the next leg higher or whether the algorithms override them and produce a V-shape is the question that will be answered over the next several sessions. Don’t be too quick to put precious capital at risk.
What Comes Next
Jobless claims hit on Thursday morning and the non-farm payroll report on Friday. Both are more important than usual because the market has been treating weak employment as good news for weeks. That only works if inflation is coming down at the same time. With oil higher again on Wednesday and three central banks leaning hawkish, a soft jobs number is not the good news that it was in August.
Hewlett Packard Enterprise ($HPE) is reporting and is ahead on both revenues and EPS, but is it good enough to generate some buying interest?
Game Plan
My positioning has not changed. I did not add on the bounce and I did not need to reduce, since position sizes were already where I wanted them going into it.
The shopping list is longer than it was a week ago and the setups are developing, but a single good close after three bad days is not a reason to act on them. I would rather see how the market handles Friday’s number and whether the bounce survives contact with overhead supply.
I’m feeling good about the way things are developing and am ready to wait for the right entry point.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long HPE.
