Market Montage

Yesterday was a disconcerting session for a few reasons, not the least of which we saw that a guidance cut by a high visibility company certainly still has a large impact on the general market.  Further, a handful of names – especially in the tech sector – that had held up reasonably well the past few weeks experienced significant weakness.  This is very similar to what we saw right before the EU summit rally when a host of consumer discretionary names suddenly experienced serious weakness after being one of the last places to "hide out".   We also saw almost the entire EU summit gap reversed yesterday, as the market is doing an excellent job making it very difficult on both bulls and bears.  …

If the pattern of the past 3-4 months continues, after these type of washouts where chart after chart goes from "constructive" to "smashed" and the index swoons, we'll have a big gap up sometime in the next week and a huge 1.5-2.0% day.  Of course it will come out of nowhere and if you are not in the market overnight to take advantage of it you sit on the side of the road watching it pass by at 90 mph.  By the time it happens, the majority of individual equity charts are damaged seriously.

This has been the only consistent way to make money in the market in the past few months.  No time to build positions incrementally or exit them – it's all in or out, and the rallies happen after a ton of technical damage has been done in individual charts.  Not a world for any sort of trend following at all.

EDIT – after that end of day bounce the S&P 500 closed almost exactly on its 50% retracement of the move off the June 26th lows – July 3rd highs.  Not sure if those are any true buyers anticipating what I wrote above i.e. "gap up opens" happen immediately after bad days, or some short covering.  Either way it appears this is the 3rd failed bounce attempt of the summer.

I came in the day asking which of the 2 gaps we would fill first on the S&P 500 chart.  Wouldn't it be ironic in this wholly bipolar market to fill both the same day?  It is still a long shot as it would require about another 10 points lost on the S&P 500 but it is not out of the realm of possibility.  This Cummins news has really lit a fire under the market … and not in a good way.   Even more "ironic" today was a day European yields fell and there was no major economic news to deal with.

Cummins is now down almost 10% – always eye opening when such large companies can lose that much market cap in an hour.