Today the S&P 500 had a range of over 2%, starting out the day up .7%, only to then close down 1.3%. Most, including myself, thought that the incredible AAPL earnings would have given way to a strong session for the broader market. It sure seemed like it would at 11pm last night when the S&P futures were up 1% and the Nasdaq futures were up 1.5%. However, the “sell-the-rip†theme came back into play overnight and throughout the morning. Today’s session tells us a few very important thing about the weeks to come for the broader market.
Before I get into that, I think it is important to note how poor this earning season has been. Yesterday morning, practically every company that reported earnings missed on some key metric and subsequently sold-off. This either tells you that expectations are too high or the economy is not as strong as many think (we will see a fresh GDP print Friday). Many analysts thought that weak earnings would be prevalent in the energy sector but not in others, they were wrong. In fact, every single sector has seen weak earnings (financials, materials, industrials, technology, energy). The key takeaway is that the phenomenal AAPL earnings is not an indicator of the overall earnings strength. AAPL is a very specific and unique story (I am very bullish on AAPL long-term). I think we will continue to see weak earnings in the weeks to come.
Today’s session was a very important one for a few reasons. First, it proved to us that the market is unable to break out. We had strong AAPL earnings and what I thought was a dovish Fed, yet yields tanked and the market closed at the dead lows. There is simply no buying. The second thing is that the central bank “put†is starting to come out of the market. Last week, we had a very aggressive ECB bond-buying program, and now today we have a Fed that said it will continue to be patient in regards to raising rates. Yet, the S&P 500 is right back at the lows of the recent channel. In my opinion, this tells you that the market is ready to breakdown; it is only a matter of when. What is even worse is that the magnitude of this pullback may be more severe then I thought before, if we break below the 200dma. Why is this? We have spent 2 months in a tight 4% range, building up energy (Bollinger Bands tightening).
