- Buyers show they are not dead yet, but expect more volatility. They are back in the trading range, after all.
- Earnings show costs eating into profits.
- Durable goods orders miss the mark. Why not? Just about everything else is.
- GS, JPM lower GDP estimates, but GDP, as with many government reports, is not an accurate read of economic health. The TRUTH about the export economy.
- Some excellent moves by well-positioned leaders as end of month window dressing starts.
- Likely to still be bumpy as the indices trade inside their ranges.

MARKET SUMMARY

Soft open leads to some buying and a decent rally, though not a change in character.

Tuesday was worrisome with that higher open after the Monday meltdown back into the trading ranges.  The open didn’t hold and the close left things uncertain.  Wednesday morning I noted in the pre-market alert that a modest downside open was a good thing: buyers would at least have the opportunity to move in at better price if they wanted to.

Indeed, all things considered, the market’s predicament was and is not that bad.  Sure the indices failed a breakout, failed the recovery attempt, and failed a last-ditch effort with an ABCD consolidation.  Even with those three strikes, however, the indices find themselves back in their trading range, mid-level in the range at that.  It is not bad when the market is in a bit of an oversold condition and is still above support in the trading range.  It is no guarantee it is going to bounce right back even with the Wednesday action and indeed they may sell right down to the bottom of the range before bouncing, but it does put things into perspective.

Wednesday stocks did recover off of a lower open as buyers moved in and drove the indices upside to some solid intraday gains.  Of course SP500 tapped at its 50 day EMA and gave up some of the move, but as noted Tuesday night, things are not going to be all positive now that the market is back in the range.  Stocks just broke back into the range and that often leads to a test of the bottom before the next rotation.  That also does not mean, however, that things will be all negative.  Also as pointed out last night, the indices can consolidate and break back upside as one of the scenarios.  If the market is stuck in the range for awhile, we can live with that.  Range trading tends to be a bit volatile, but volatile inside of fairly orderly moves, moves that tradable.

On the day growth indices showed the strength. NASDAQ +0.55%, SP600 1.2%, SOX 0.95%.  The large cap NYSE struggled: SP500 0.3%, DJ30 0.3%.  Volume rallied a bit, good to see on the upside but still not convincing enough to make evoke a real change in character.  Overall it was a day that showed the buyers were not dead yet, but they were not in enough control to even hold all of the move on the session.

THURSDAY

After my earful regarding GDP, the second Q2 iteration is out pre-market.  2.0% is expected, but given my tirade, does it really matter?  Yes to the extent the market uses it as a discounter of future activity.  Thus if it rises it is viewed as positive even though it is fraud in showing economic health.  If it misses it will be a negative, but frankly I feel it is foolish to expect an improvement given the decline in economic data, but then there are those exports again that could pump it up though they provide little widespread benefit outside those companies, some of which are the lapdogs of the Administration, that benefit from the export economy.

There is also the weekly jobless claims.  Expected to fall to 400K, and if it does it will be heralded as a reversal.  Do you think those forecasting this know ANYTHING about what the number will be?  They are the equivalent of weathermen.  They make a guess, this time hoping it continues lower.  400K is still a very bad number, but if it is hit it will be heralded as a victory.  For the spin doctors.

It is also the week of the end of the month and that means some window dressing is occurring, and that impacts some big names.  Perhaps that is helping move the energy stocks back up off their tests as well as metals and other commodities.  Even so, we see many leadership caliber stocks as well bouncing off of very nice tests of their last runs.  Those are the keys to the moves as they are not just being acquired to dress up the portfolios to end the month but are stocks in good patterns, under accumulation, and investors wanting them for longer term holds.

Thus we were buying into them on Wednesday, but as you noted, most of them were still in the defensive areas.  They are quality stocks, growth stocks, in those defensive areas, and they are getting more than their share of the money of late.  Thus as they started back up we were buying.  There are others that are still in position to move, and if they make the breaks higher we are ready to move into those as well. 

Yes the market sold back, but as noted above, the selloff thus far has put the indices into a pretty well defined trading range with good support (SP600 bouncing off its interim support).  Moreover, they are somewhat oversold given this pullback.  Selling off pretty hard, getting oversold, but being in a trading range with good support is not a bad situation to be in. 

There will be more ups and downs as the volatility in a trading range continues.  The indices may turn right back down from here and test the bottom of the range.  If so that is still workable as then you make the play to the upside.  Indeed, if the SP500 tap at the 50 day EMA continues the move lower, there is room to play the downside to the bottom of the range as well.  That is the life inside a trading range, but it is not that bad, all things considered. 

That simply means we will continue looking at very good stocks in very good position to move higher as well as those stocks and indices that moved up to resistance and stalled as potential downside plays to the bottom of the range.