What appeared to be a solid rally off the lows lost steam after noon eastern standard time. At the open it certainly looked like we were going to continue Tuesday’s sell off. Sellers were simply exhausted in the near term as buyers took over pushing stocks to the highs of the session. Volume run rate was indicating volume was much higher than Tuesday. There are plenty of reasons to blame for the market failing to close strong and near the highs. The fact of the matter is this market simply cannot muster a strong rally. Like we have noted this market has a lot to prove before we get involved in on the long side. We prefer to stick with our model and while we are in sell mode we are heavy in cash and we will wait for our opportunity to pounce.
An interesting development is the outperformance we have from the Russell 2000. Today it closed higher by .36% while the S&P 500 closed flat. The NASDAQ couldn’t even muster more than a 5 basis point gain. Dip buyers should be encouraged with the Russell 2000 moving higher and leading the pack. Keep in mind the Russell 2000 is still below its 50 and 200 day moving averages. There are no guarantees we rally simply because the Russell 2000 is leading. When we do rally and we continue to see outperformance from small caps we know where to look for longs.
Earnings continue to pour in and we continue to get crazy action in after-hours sessions. One such crazy action was in ZU this after-noon. In the chatroom we were watching it gap down almost 10% then within minutes it was up a few percentage points. The stock settled lower at the close of the after-hours session just about $37.00. YY also reported earnings, but its response was much less volatile than ZU. GMCR reported earnings, but the street was too excited as the stock ended lower nearly 2% in the after-hours session. Due to our market model post earnings moves have a low probability of success. This market is going to make it very difficult to profit from earnings moves.
We are not going to guess when this market will turn and begin a new uptrend. We’ll let others try to be heroes while we wait patiently for our opportunity.
