“The expectation, not news itself, is what moves market; the stock market is more an art than a science and far more complex than most people understand.” – Gerald Loeb
Last Friday the U.S. market initially gapped up on the encouraging Job Report, but then stocks immediately reversed down from the higher opening and continued the selloff all the way to the close. The S&P lost 0.9%, and the Nasdaq skidded 1.3%. The broad sell off prevailed in many sectors, such as biotech, oil, material, banks, solar energy and some of technology.
Since I mentioned about possible market upside move in my last blog, the S&P broke out its small consolidation area with a big percentage move Thursday ahead of its Non-form Job Report, but it gave back most of the gain Friday.
Despite Thursday’s big gain, some suspicious market behavior has made me cautious as I saw wild gyration moves on some stocks triggered by program trading along with earning news. Despite big gain on their earnings by PCLN, EQIX, SBUX and WFM, more stocks got sold off from their big high opening on decent earning news, such as CRUS, ELLI, LNKD, SSYS, etc, along with the weakness in AAPL.
Some people wondered why IBD remained its market outlook as Market in Correction after Thursday’s big gain. What I saw are the lack of leadership; poor internals; the weak oversold bounce on Nasdaq. Friday’s bearish market action proved such evidence.
Friday SPY gapped up exactly to its 21-day and 50-day SMA line as its resistance level, also it was at the lower line of the rising wedge on my chart, and then it reversed down and got sold off to its day low into the close. The next level to watch is its 100-day SMA line posted on my chart.
The market darling $AAPL continued its bearish selloff on high volume and closed at its six-week low of 576.8, below its 200-day SMA for the first time since last November. Only 10 points away from its 78.6% retracement level of 566, AAPL at this level could be tough to initial a shorting position as each hard selloff is often followed by a powerful snapback before it hits upside resistance levels.
Remember: one day sunshine doesn’t make it a summer! I have been saying it since AAPL bounced to 682, then 650, and 633 since its downtrend started six weeks ago from 700ish. We should only trade it according to what its price action shows us.
I like what Taoism says: “It is better to stop short than fill to the brim; over sharpen the blade, and the edge will soon blunt.” It also applies to trading.
During the correction when market is waiting for the presidential election result, and unstable price action and the churning behavior are seen on many stocks based on earning news, it’s best to be disciplines, nimble and be flexible.
Best luck on trading!