This Sure Looks Like Toppy Market Action
We have the makings of a scenario where the bears could gain an advantage.
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It was one of those days where the action was much worse than it looked. The big-cap indexes bounced back after some early selling, but the Russell 2000 IWM lagged badly, and there were pockets of extreme weakness in many small stocks. Only eight names were on my 10%-or-more gainers list, and breadth was negative.
Technical damage was limited, but the price action reflected a nervous market that was worried about what would happen with the Nvidia NVDA report on Wednesday night.
Strong markets tend to stay sticky to the upside, which we are seeing, but this looks like toppy action, and it is going to take some real effort for a new uptrend to gain momentum. The reaction to Nvidia Wednesday will tell us quite a bit about the market mood.
Stronger-than-expected consumer sentiment helped on Tuesday as it hints at a potential soft landing and keeps the Fed from cutting by a half-point. A half-point rate cut may be more of a negative than a positive because it looks like a panic reaction to a slowing economy.
I’m concerned that we are seeing toppy action, but at this point, we don’t know whether it will develop into a significant downtrend or not. The combination of negative seasonality, Nvidia earnings, and the Fed meeting in about two weeks creates a scenario where the bears could gain an advantage.
The good news is that many stocks needed to pull back to offer better entry points, but it is important not to move too quickly. We are now entering the historically worst month of the year, and there will be plenty of news to trigger difficult action.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
