IBD says: “A strange thing happened in the market Wednesday; major stock indexes declined in higher volume.”
Although today created a distribution day for the Nasdaq and Dow, the market could have done very much worse today. We started the day with a bout of bad news.
• Private job losses were more than the expected 345,000 as ADP reported 371,000 shed in July
• The Institute for Supply Management's services index declined, also worse than views
With this news, we could have expected a deep sell off in the market, but it didn’t happen. The market closed well off of its lows. One thing I did notice today was that the financials were very strong today. The XLF, the index that I use to track the performance of the Dow Jones Financial Index was up a big 3.45% today. Considering all 3 major indexes were down today, this is quite impressive. Most market rallies are lead by the financials. Although most of us believe this rally in a fraudulent rally, it doesn’t mean we can’t make money on it and as long of the financials are performing, stay long stocks. If the financials start to crack, get the heck out of the way. We are up 50% over the past 5 months; we are way overdue for a significant pullback. A few financials of note today:
• Bank of America up 6.52%
• Citigroup up 10.15%
• CIT group (on the brink of bankruptcy a few weeks ago) up 37.62%
• PMI group up 19.03%
• Wells Fargo up 5.74%
These are defiantly not the type of earnings you expect when people are still losing jobs. But then again, the market is a forecaster of the future.
There is really no take-away for today. Looking at the very big picture, it is a distribution day, a bearish sign, but it’s the first one we have had in weeks, so it is of no consequence unless we start to get more of this. I believe there are still a lot of shorts in the market who are very frustrated at this point, but the market may not go down until every last short has covered.