Bulls Will Be Hard Pressed to Produce Sustained Upside Now

The market surprised many investors with a strong open on Thursday morning although Nvidia NVDA was seeing a sell-the-news reaction to its very good earnings report. Nvidia never went positive, but other AI stocks appeared to be relieved at the good report and performed well for most of the day.

There was an abrupt intraday reversal to the downside around 2 p.m. ET, which cut gains and caused a poor close, but rotational action into the Russell 2000 IWM and small-caps helped to keep breadth healthy. There was quite a bit of green on the screens, but not a lot of big moves. Upside momentum was very inconsistent, but the weak finish is not a good sign.

The strength on Thursday did not have a convincing feel to it. It is likely that a few folks were caught leaning too bearish after the Nvidia report, and they helped create some upside as they rushed to reposition. I'm very skeptical that the bulls can produce a sustained upside now when earnings are mostly over, and we head into the weak month of September.

The PCE report is on Friday morning, and next week, there will be the July jobs news. These two reports may elicit a response, but unless they are wildly different than expectations, they are not going to change the likelihood of a quarter-point rate cut by the Fed later this month.

I’d like to be more excited about the positive price action, but my gut feeling is that we have a top forming, and we are going to see some downside. If it doesn’t happen immediately, then the Fed rate cut on September 18 is very likely to be a catalyst for selling.

For now, I continue to hold substantial cash and to be very selective with new buys. I’m not worried about missing out on the upside at this point. There are plenty of very good stocks out there, but very few good entry points right now.

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

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