Market Briefing For Wednesday, Oct. 31

An analytical cliffhanger is evoking all kinds of interpretations across the spectrum of market observers. The reality is it's an 'inside day' consolidation suspected as the most likely Tuesday behavior, after Monday's drama. And for sure; alternating Wednesday (Halloween) action promises to be spooky for both Bulls & Bears; and this 'hollowed-out' pumpkin of a market struggles to extend the rebound, and probably fades generally as outlined. But as we noted Monday night; there was increased negativity after breaking below a key 'standard deviation' lower band; so some sort of turnaround was likely. 

  

Both sessions do not confirm a bottom and secondary test (or similar action that can be construed as a low for the correction); though stranger patterns have and do occur in the market. One thing markets don't often do is just 'conform' to preordained formulaic prescriptions telling 'it' how to bottom.  

In fact, when we've seen that, such as in February, as a precise low formed at a double-bottom within a couple days; I indeed called for a turn from the January top (crash alert) warning; for at least a trading-rally at the time. One reason was it was 'too perfect'; hence I thought it was manufactured and so would temporarily succeed, whether it seemed logical or not. Here it seems logical; but it's not exact, requires testing, and facing big known-unknowns. 

What we are seeing here isn't exactly manufactured; and there are reasons for the wild swings and differing attitudes. My assessment of the action has simply been continuation of the 9 month 'rolling bear market correction' that I called 'Rinse & Repeat', with the FANG type stocks plunging 'after' the real broad market already had worked to much more attractive levels.  

I think I can summarize that by saying that 'high wealth individuals' were for the most part tracked as 'sellers' on the year's earlier rallies; some foreign funds and others joined into the 'stealth' selling under-cover of a firm DJIA and S&P during the late Summer and early Fall. They are cash-rich just as we had advised; so have the liquidity to start nibbling at perceived value.  

On the other hand; many hedge funds (and even some mutuals) egged on by chasing what they perhaps missed last year (Trump's election rally) were pressing into momentum stocks exactly when the game was fading. That's a reason for their panic more recently; and need to reduce leverage or build a modicum of liquidity, which generally they were not in.  

Much like the bifurcated market of 2018; you had bifurcated structures even within those that control the majority of market activity these days, as noted. So that's (summarizing it aside the obvious political, tariff and other issues, like the Fed, China and High Yield performance) essentially 'why' you have a cohort of logical opportunists willing to buy, while others are still in panic.  

In sum: absorption of supply is taking place by high-wealth and others who believe (rightly or prematurely as can't entirely be known given outcomes of such details as Trump and Xi meeting; or the Midterms and implications)... that essentially value is 'reasonably' restored in some sectors or stocks, even if it's not exactly bargain day.  

And distribution may have concurrently taken a pause; as the hedgers and others who are still heavily laden (ridiculously so if they were buyers almost any time this year) in FANG and similar momentum stocks, lick their wounds a bit; and 'hope' Tuesday was more than a bounce. 

The characteristics of the bounce we had on Tuesday were outlined mostly on Monday evening; because it was such a wild day and clearly time for the 'core' of the market (operators?) to attempt some holding action. That's why I called for an inside consolidation day; false starts; selling; but then a sort of intraweek rally that was actually essential; and something to look for.  

Bottom line: most of what we're seeing is technical; not fundamental. The ranges of the Dow and S&P are incredible intraday. You have hedgers that were throwing in the towel; and pundits that were cheering on FANG stocks into the highs just a couple months ago suddenly urging people to 'salvage basic capital' and prepare for the worst case.  

So it was time for a rally. And that was our point last night to be looking for. Incidentally that doesn't mean it's sustainable and does not mean we get more than a reprieve. It could mean that; but would require more clarity as to where the Nation's policies are heading; and that's as often discussed.  

Meanwhile this isn't just about Facebook beating earnings (notice revenues slightly missed) or even about Apple's result tomorrow (though that matters a lot more; since AAPL is about 5% of the S&P's total capitalization). It has to do with 'perception' regarding the future; and that points to Midterms. It's a reason so many analysts remind everyone that markets normally will rally after Midterms, and I don't disagree. At least politics and earnings will then be behind the market; although that doesn't make this a 'major' bottom (for all who say 'major bottom' I'd ask what do they think 2009-'09 was; and for that matter if it's a 'major' bottom, when was the 'major top' if that's so).