Today started much like the previous ten previous sessions. The market looked weak at the open with S&P500 futures over .6% lower overnight. That weakness was nothing more than the salad course for these market bulls. The pasta course came soon there after and market weakness was once again turned into a raging buying frenzy.
but then something happened. Something we haven't seen during this massive reversal from the Icahn "DANGER AHEAD" lows. The market started to sell off.
Prices fell into the close with the S&P500 closing just off session lows. After the bell weak earning reports from both $INTC and $JPM helped take stock futures even lower.
Don't get fooled again.
I'll be the first person to tell you the recent market action has not been friendly to someone with a bearish skew on the market. It has been a borderline ridiculous rally the last two weeks. But if you dig beneath, or as I talked about this morning, blow the leaves off the street, there are plenty of cracks beneath. And I think those cracks are getting bigger.
I pointed out in the mdidle of the session another wonderful bearish set up for $IBB.
I was quick to point out the long term topping pattern for $IBB earlier this year. I also pointed out another impressive bear flag for $IBB a few weeks later. Here we are again with Biotech putting in a bear flag and setting up for lower prices.
Let's see how much further Biotech has to go. The irony is all the analysts think this sell-off is overdone. That the current weakness is a great buying opportunity. Yet the price action is telling a different story. I wonder who ends up right and who ends up wrong?
In 2015 we hit new all time record highs, but behind the surface stocks are rolling over. The stocks that have yet to roll over are starting to look ominous and offer great risk reward trades.
Disney is one of those stocks. The earnings collapse is a small sample of what likely lies ahead. Amid the recent pull back, analysts and talking heads alike love this stock. And perhaps that is why it remains over $100. I think those days are numbered.
Another stock that has been doing the heavy lifting is Home Depot. The trend is firmly entrenched to the upside. Like $DIS Disney just before it reported earning, Home Depot looks ready to blast to new highs. Which is why I think it is a great earnings trade for one of those 5-7% moves lower.
Small caps have led the market higher. The recent weakness earlier this summer gave an indication that the market was setting up for downside. That remains the case here. Today early strength turned into a late day rout. This could just be the start if a move to long term support at $102.
and finally.... the US Dollar.
As I have pointed out previously the US Dollar is setting up for a resolution of recent consolidation. That resolution will end up sending the US Dollar back to the highs of earlier this year.
The irony is, the bears have been talking for the last 6+ years about how the Federal reserve will devalue the currency down to nothing. But the exact opposite is going happen. We are going to see the US Dollar continue to strengthen. The implications will be far reaching. And ultimately I believe this will be part of the reason the market pulls back.
The last few weeks are exhibit A for trading for market weakness. It remains a difficult task amid unprecedented central bank accommodation. Charts have started to turn. But I remain unconvinced that the weakness of August was just a healthy pull back.
See you in the chat room tomorrow.