Bulls Stymied as Market Focus Shifts
Upside momentum was unable to build following a big jump on the Fed's half-point interest rate cut.
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The bulls were hoping for upside momentum to build after the big jump on the half-point interest rate cut on Thursday, but option expiration and index rebalancing created distractions and volatility that shifted the market focus.
Apple AAPL traded wildly in the final minutes of the session and went green to red despite a large amount of net buying due to the rebalancing of the SPDR Select Technology ETF XLK. One-hundred-and-sixteen million shares of Apple traded at $228.20 at the close.
Many other stocks had large blocks that were traded at the close due to rebalancing and option moves. This action has nothing to do with fundamentals, which renders the technical action rather meaningless.
When the dust settled, breadth was around two-to-one negative, and all the indices ended up in the red. The number of new 12-month highs was cut in half from Thursday’s robust session.
A pullback after the breakout move on Thursday isn’t at all surprising and is probably healthy. Many stocks need to consolidate gains, and buyers need better entry points. The dip buyers will be the best clue as to the market’s health.
Next week, we will gain much better insight into where the market is headed. There are a number of economic reports due to which market players will be watching carefully to see how fast the economy is slowing. There is still concern out there that the Fed’s aggressive half-point cut may not be enough to stop a slowdown. There is even talk about stagflation if growth slows, but inflation stays sticky.
Technically, the bulls are in good shape. The market has positive momentum, and it won’t take much of a pause or a pullback to deal with overbought conditions. We still have the potential for negative seasonality, which could become self-fulfilling if the gap that was formed on Thursday starts to fill.
I’ll be working on expanding my shopping list, but I’m going to remain very selective with my entry points.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
