The market two good reasons to sell a bit on Monday. First, there was the overbought condition on the Nasdaq 100, and second, there was caution ahead of Yellen's testimony before Congress on Tuesday and Wednesday. That was enough to keep the buyers away for a day. The market made the usual attempts to blast up, but those were met with some selling back down, although, when all was said and done, the bears accomplished nothing.
The Nasdaq 100 actually finished green a bit. The market just doesn't want to sell in front of Ms. Yellen, who they know will keep protecting it, even if she says there will be a rate hike soon when she speaks Tuesday. The market knows all too well based on her past behavior that there is nothing she won't do to protect Wall Street in order to keep Main Street rocking. So we look at Monday's market behavior and come up with the same old story. The bears are spectators to the dominance of the bulls and it's showing no signs whatsoever of letting up any time soon, although you know me, never think it can't turn in an instant when froth is this bad. That said, there are no signs of anything bad at this moment in time.
One hour after the market closed for trading on Friday, State Street Corporation (STT) decided it was time to lower their earnings projections by 10% due to their needing to raise an additional $65 million for legal expenses related to allegations over illegal trading behaviors. It seems the financial stocks are somehow always involved in those types of allegations. I thought the stock would get annihilated this morning, but thankfully it never occurred, and when the day was over it actually printed a decent inside candle on declining volume. If you're a bull you can't complain about that.
Of course, that stock, and all financial stocks, will be affected by whatever the Fed says regarding rates tomorrow, but for the day you can say we dodged a massive bullet.
Since the market acted decently last week I can only imagine that the bull-bear spread has actually worsened. When we get the numbers this Wednesday, my guess is we're actually above last week’s 42.4% reading, which is just insane. There has to be a number that snaps the market lower and allows for a real correction, but I have no idea what that number is since we're already well above what that number would normally be. All I can keep suggesting is to respect these levels for what their potential is with regards to market behavior. Don't let your guard down. Keep those stops in place. When it hits to the down side, it will be sharp and swift. Stick with the best earners. Stick with leaders.
The market only needs one excuse to sell hard when there are numbers such as we're dealing with now. The trend is bullish, no doubt. I would not be shorting, but I would continue to respect what's possible if something goes wrong. We're staying with the trend until it flashes a true sell signal technically. A day at a time, but Tuesday should have some real wild swings based on the Fed. Pull up a chair and enjoy the show.
-Jack Steiman
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