Bullish Hopes Are Dashed as the V-shaped Recovery Turns Into a Failed Bounce

The weak finish on Tuesday was the tipoff that it might be difficult for stocks to bounce back after the ugly action on Monday. 

Wednesday started nicely, but stocks began to struggle about two hours into the session, and selling took hold for the rest of the day. A late bounce try was slammed, and stocks finished the day at the lows. Breadth was 3,700 gainers to 5,650 decliners, and the Russell 2000 led to the downside with a loss of 1.3%.

There wasn’t any news flow to trigger the shift in action. It was just typical technical action, with the DJIA and the Russell 2000 reversing almost exactly at their 50-day simple moving average. The biotechnology sector was particularly poor, with Amgen AMGN taking a hit of 5% and Novo Nordisk NVO down more than 8%.

Weekly unemployment claims will be released Thursday morning and will be of more interest than usual after the July jobs news roiled the market on Friday. The narrative that a recession is coming fast and the Fed better cut rates is losing traction, but the market is likely to be hypersensitive to upcoming economic reports. Bad news is now bad news because inflation is no longer the big issue.

We are heading into the worst time of the year seasonally, there isn’t any upcoming earnings news to add a boost, and the technical picture is poor. We will see some counter-trend action, but the bears are starting to take greater control of this action, and capital preseveration is paramount.

Have a good evening. I’ll see you Thursday.

At the time of publication, Rev Shark had no positions in any securities mentioned.