Investors encouraged by yesterday's last hour spike of 10 S&P points are waking up to a kick to the teeth with futures down 18. If you net the two you get -8 from where the market was at roughly 3 PM yesterday, but of course that spike knocked some people out of positioning that would have been advantageous this morning. The market rarely makes it easy for anyone. Chemical /ag company Dupont (DD) is down 6% in premarket on an earnings miss – despite announcing 1500 job cuts, which Wall Street usually loves. 3M (MMM) is down some 3% in premarket on an inline earnings number but missed revenues. United Technologies (UTX) – similar issue: ok on earnings, miss on revenue. It is quite easily for companies to
manipulate massage earnings, but revenue is another story and this quarter has been dominanted by revenue misses even in this era of setting expectations low so they can be easily beaten.
Of course all we heard for weeks as the market rallied on QEmore was this was all priced into markets. You never know what is in markets until after the fact and with the benefit of hindsight. The other issue is Q4 earnings which we've highlighted often are being modeled to see a sharp uptick from Q3 levels – that is not going to happen; things don't change in 90 days on a dime.
Yesterday the S&P 500 actually underperformed the NASDAQ (due to Apple of course) and Russell 2000. This is a change in course as that index had performed the best during this correction. So it could be the beginning of a 'catch up' phase as the NAZ and R2K are down about 6% off peak levels whereas S&P was not even at 4%. As for technicals, we begin the day broken down outside the ascending channel the market has traveled since early June. There are some support levels in the lower 1400s so it looks like we might test some of those today. I wrote yesterday that there was a lack of emotion in the selloff; most likely today's large gap down will help to change that.
The McClellan indicator is not at an extreme reading but today's selloff should help push it nearer to that level.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog