The market wants to go down, clearly. Why else would it fade at the peak yesterday and then open with a clear downside bias today?
- It is clear that the major indices are in a corrective mode at the present time.
Didn’t I just write that? Actually (truthfully), I didn’t just write that exactly, but I did say the market wants to go down. I should have written it though, because it is true, to a degree.
- Until proven otherwise, this remains a bull market.
The above is true also. And what I meant by “to a degree,” relative to the major indices being in corrective mode is that there are forces applying pressure to the market other than a simple desire to correct. Germany’s economic numbers are weakening and the EU as a whole has been weakening economically. The war between Russia and Europe/USA is taking its toll. This is a drag for both the US economy and the market.
Q3 earnings are coming out and the whispers are that earnings will not meet expectations. There is quiet talk of the year-over-year earnings increase ranging between 4.5% and 7.5%, which would put earnings in the mid-to-upper $29 range, at the high end. It appears, though, the market is not jumping on the higher-end bandwagon. No one knows, and so there is trepidation. Folks are clearing the decks, just in case.
The upward pressure on the US dollar is weakening and gold is rising, as is the VIX, and downward pressure on small-cap stocks and oil prices continues. Gold and the VIX rising suggests fear, and more downward pressure on small caps suggest risk aversion. Weakening pressure on the US dollar suggests traders are sensing a top there, and so they are taking money off the table. But where is it going, if not into equities or commodities (gold is up but not much)? US Treasury yields are also dropping, which suggests money is going there, a flight to safety for those in fear.
Now, the downward pressure on oil prices reflects the global oil glut, but it also suggests fear about the economies of Europe, China, and Japan. As we all know, the price of oil is not just about supply and demand; it is also about speculation, and the whisper here is that the global economy is weakening, which will lessen demand pressure and increase supply.
What we have right now in the market is fear deriving from a sense that things are not clear. Earnings, Ukraine/Russia, Iraq, Iran, Syria, ISIS taking over the Middle East, and global economic concerns all contribute to this sense of muddiness.
And there is one more thing that is not clear – the actual threat of Ebola outside of Africa. France, Spain, and the US have all now reported cases of the virus. There is global talk of airline checks for the virus (although with a 21-day incubation period, this seems useless) and some talk of banning flights from Africa.
Oh! Sorry, but just one more thing … Don’t forget about the Fed.
I get it. The market has no compelling reason to go up, and when things are not glowingly positive, they are negative. In these environments, the market rebalances, consolidates, and eliminates downward pressure by taking out the various levels of shorts along the way.
As long as the US is still producing economic data that suggests the US economy is improving, the rebalancing will be limited and the strategy of buying the dip will remain in play.
- The U.S. Bureau of Labor Statistics released their Job Openings and Labor Turnover Summary (JOLTS) for August. Job openings levels went up in nondurable goods manufacturing, health care and social assistance, and in accommodation and food services.
- The report also says the number of job openings (not seasonally adjusted) increased over the 12 months ending in August 2014 for total nonfarm, total private, and government. The job openings level increased in many of the industries and in all four regions.
The only question for the buyers of the dip, though, is when to buy; when is the dip at the bottom? This question arises because, as I wrote recently, the trading range has widened considerably. Sit tight for now, but strap in.
Trade in the day; invest in your life …
