A day after we entered into a sell mode the market continue to sell off in mixed trade. Volume ended just lower on the NYSE, but nearly 6% higher on the NASDAQ. IBD joined in on the correction mode as it flipped its model into correction mode. Leading stocks continue to act in lackluster fashion, but we are still finding a few stocks kicking off buy signals. It certainly can be rotation, but whether or not it means we are about jump higher is another question. We did finally see an end-of-day rally rather than selling as one positive sign on the day. While we are in an operational sell mode and the IBD is in correction mode does not guarantee we continue lower. Stick with how your individual stocks act and whether or not they are giving signals.
For quite some time we have seen an IBD Correction mode leading to a market bottom. It has been a running joke in our chat room. Let’s not forget prior to 2009 distribution had a MUCH better track record versus post 2009. The correction in 2011 had distribution pile up prior to the late summer fall. However, it is an outlier rather than a certainty. Caution is warranted, but we are not going to give up on our long signals. If they do not work out we will have a better idea where this market is heading. Stay tuned.
Today’s economic data showed a decrease in first quarter productivity. Not a good sign for the economy if you want growth. Demographics in the US do not support growth in its labor force. Thus, if your labor force is not growing you need labor productivity to produce economic growth. Is the market foreshadowing a sluggish economy ahead? Let’s face it earnings season has not been too kind. Look at AAPL trading at 17x earnings. It consistently produces growth and yet trades at a cheaper multiple than the S&P 500 and found a hard time trading higher after reporting another great quarter. AAPL is responsible for much of the growth in earnings and if the stock is unable to push higher after producing what does it say about this market? It is likely not a good thing.
Of course we always have Janet Yellen letting the market know multiples are generally higher. It is pretty obvious ZIRP and QE have pushed multiples to extremes. As buybacks continue as ZIRP remains in place there is no reason to think these conditions cannot continue. Until the Federal Reserve starts to raise rates the overall environment lends itself to higher equity prices.
The bright spot here is certainly seeing many tails today. Despite breaking out on Monday XLF has reversed completely wiping out gains. Despite the reversal it was able to find its footing here closing well-off its lows. IWM was able to close in positive territory after finding support at session lows. In all fairness it has been beaten up the most during this most recent selling fit and a bounce is not out of the question after a bout of selling. We will need to see this market turn on a strong price reversal. Seasonality certainly will not add wind the market’s sail and buyers will face a fierce challenge.
TLT still is trading like the Federal Reserve is about to raise interest rates. The Dollar Index on the other hand is telling a completely different story. EURUSD has come off its lows nicely even though the ECB continues with its QE program. Who wins out: currency or bond yields?
More to come from this market. Keep in check your risk management process and stay disciplined.
