Even-keeled moves are entirely absent in this market rebalancing. It's not a painless situation for many of the bigger stocks; and many other reflect what is a vulnerable valuation level, especially in those that rallied earlier this year.

Mega-caps have been involved in extreme capital expenditures; and that's for sure part of the concern regarding vulnerability as they can't reflect better ROI in a short-term way. Even if they do well going forward, the action is trickier. It remains an hourly contest with increasing competition for bids; near Olympian challenges to get a decisive more; especially ahead of the FOMC meeting.

Primarily this remains an alternating series of moves and rebounds, off of the 50 Day Moving Average, while the S&P tries to give enough 'clearance' above that 'marker' to afford time to see what the Fed has to say this coming week. I don't necessarily expect a rate cut (although would prefer that); given the PCE was a bit hotter than would really press the FOMC to take that move now. For sure they might, rather than wait, and that would portend favorable attitudes.

There are areas of the economy that have been depressed because of a tight Fed (especially Housing and Autos; but prices themselves are a problem and remain so regardless of financing costs); while the overall expansion has fair chances to prevail 'if' rates get friendlier and there's not an existential issue.

One existential issue could be further pressure to the right in Europe (or just a common sense grasp of what the migrant challenge there is, which generally is different than the border issues in the U.S., although we have questionable numbers of unvetted illegals as are a real risk, per the FBI Director's warning repeated just this past week).

In France it's a really heavy situation as we had unfortunately noted before all the attacks on the TGV and Eurostar systems; for which blame isn't attributed 'yet'. Might be unions; might be terrorists; fortunately nobody killed by it ..yet. I feel sorry for many athletes (particularly stranded from the U.K. and Germany) who could make it in time for their scheduled opening ceremony participation.

Market X-ray: well, we got the early July rally; the rotation with bifurcation and it mostly continues. Smaller-cap signs of life appeared; albeit not dramatically.

The second half of July featured our declining to S&P 5400 and rebounds that really amount to providing 'clearance' above the 50-Day Moving Average just enough so that there can be some jockeying around the FOMC Meeting this coming week, without triggering any any 'algorithmic' sell signals that typically would proliferate if (or we suspect when) S&P breaks that level heading lower.

I emphasize pricing will very much be an individual stock situation based on a few factors, primarily how the company's business is doing. You say that this week is divergent earnings responses, and there is more of that just ahead.m

Well the Russell led upside phases again this week; affirming the rotation out of mega-caps and into a broader variety of less overvalued stocks; regardless of whether big or small caps; although it more visible in the small-cap 'space'.

Big stock prices generally worked higher than business prospects justify with a reasonable time-frame view. If it's really a 'rate-cut' rally in-advance; ok, but I don't think so. I rather believe the market 'wants' a rate cut; but needed to be bounced off the 50-day Moving Average, so as to avoid being pummeled right in-front of the FOMC meeting. August still looks rough or at least problematic.

Friday close right on the 50-Day Moving Average; above the lower 'band' we'd noted; after dropping slightly below it a couple times in recent days. Yes, this has been somewhat 'big versus small' but it's not that simple Semiconductors have been mostly under pressure, and they don't qualify as real small-caps.

Generally I still suspect we see lower S&P levels as we evolve into or later in August, but there are many variables, across all the prospects you already do know of, so I'll not reiterate. But Semiconductors have been a good indicator for 'tech', which has to be the leader (or among leaders) in sustainable rallies.

Bottom-line: financial duress is not over; but will ease 'if' the Fed cuts; as the focus becomes friendlier monetary environment rather than worry about deep recession prospects (which is not happening; although society and business remain quite bifurcated). This is still the 'softish landing' consistently expected.

More By This Author:

Market Briefing For Monday July 22
Market Briefing For Wednesday July 17
Market Briefing For Tuesday July 16