Turnaround Tuesday

Stocks continue to be oversold in the short-term and a bounce is likely as soon as today. It’s Tuesday so don’t be surprised to hear the media focus on this historical reversal day. As I have mentioned before, I do not believe this is the rally to buy or chase. More than likely, stocks will bounce and regain some of the lost ground before rolling over again to what could possibly be the bottom to buy.

I m keenly watching biotech, healthcare, consumer discretionary and financials if we do in fact see a short-term rally. It would be very disconcerting if they either don’t rally or rally feebly. High yield bonds are another sector which bares watching closely. They are oversold and are supposed to rally if stocks do.

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Bulls Step Up… Kinda Sorta

What a great day I had in New York with my friends at Yahoo Finance and Fox Business. In all, there should be five segments posted over the coming week. I began the day at Yahoo with Jeff Macke doing a piece called The Rally Has Begun and Here’s How to Play it. Click on the link and let me know what you think. This was the “calmest” of the three segments!

Changing gears, here are some comments from recent action that dovetails nicely with the Yahoo piece.

A few days ago, I discussed how the stock market was oversold in the short-term and due for a bounce, but that a better intermediate-term low was probably near here yet. With a wicked reversal on Tuesday and follow through on Wednesday, the bulls drew a line in the sand and stepped up. This action was important in preventing prices from snowballing lower. Stock market behavior around tax day hasn’t been that kind to the bulls historically, so it was good to see the tide stemmed.

Several things continue to concern me looking out beyond a few days or weeks. We still have not seen the fear index (VIX) even pop above 20, let alone show real despair. Over the past year and change with almostĀ  no downside, the VIX spiked north of 21 at bottoms. Treasury bonds continue to make new highs for 2014 and even closed slightly higher today when they should have been down 1%. Whether it’s looming trouble in the Ukraine or a slowing economy, it’s not a positive for stocks.

Finally, sector leadership has viciously rotated and the new leaders are indicative of the final stage of a bull market. Energy, REITs, staples and utilities continue to push higher.

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Fox Business TODAY @ 1:05 PM

I am going to be on Fox Business’ Markets Now at 1:05 PM EST today, February 4, discussing the stock market’s plunge from the perspective of someone who forecasted it a month ago.

Yesterday’s collapse was very broad based with 94% of the volume on the downside. That’s the second 90%+ downside volume day of the decline and while a little late, confirmed that the stock market is in a corrective phase.

Sentiment has come way off the overly bullish and complacent levels we saw last quarter and we are just starting to creep past neutral into a tiny bit pessimistic. Another solid day or two on the downside should really move people into the fear and mini panic camp, which will help to establish a bottom in stocks.

Today has the potential for another Turnaround Tuesday. The last one fizzled in one day. With stocks closing at their lows yesterday, the last thing the bulls want to see is a higher open that continues higher all day. That’s a snapback rally, which is almost always followed by another selling wave within a week or so. Much more constructive action would have stocks opening lower and firming throughout the day, closing near their highs. Judging where the futures are now, I doubt we get the latter.

The bottom line is that the correction is beginning to restore the wall of worry and there should be a tradable low this month.

Bernanke’s Swan Song at Interesting Crossroad

On Monday, I discussed how a very short-term rally was close at hand. I continued that yesterday morning about the prospects for a Turnaround Tuesday rally. The bulls came back to work on Tuesday in a very underwhelming way. The open was without conviction. Volume was anemic, further solidifying my stance that the market isn’t close to a low of any significance. With Apple’s disaster, stocks had a chance for a big gap down and short-term washout. But that wasn’t to be.

Today, we have the conclusion of Ben Bernanke’s final meeting as Chairman of the Federal Reserve. Fed statement day is typically a green day for stocks, especially when they are not at new highs, which they are not right now. The short-term snap back is supposed continue a bit longer before rolling over again and revisiting the recent lows, however not doing so would only add to my current intermediate-term negativity on the market.

Regarding the Fed, the market is expecting another $10 billion in taper to $65 billion per month. It’s no secret that I think any taper is absolutely the WRONG move and our markets and economy will suffer consequences from this. I have heard from people that the Fed is watching the stock market decline and will postpone the next taper. First, I think that is ludicrous. Stocks are up 10%+ just from October, let alone the roughly 150% from the March 2009 bottom. The Fed would lose even more credibility by worrying about a 3% decline without any signs of stress in the much more important credit markets. Sentiment has just notched back to neutral from being overly bullish for months. There is no way the Fed really cares about the stock market at this juncture.

It’s going to be an interesting day, especially after 2:00pm and coming from what looks like a very weak opening!

Turnaround Tuesday

The carnage continued yet again on Monday, spilling over from Friday’s sharp decline. If you turned on the TV, you would have thought stocks are down double digits and in free fall the way the pundits are talking about this little decline. But you know better. Since the first of the year when the market started losing the positive calendar tailwind, I have been discussing a scenario for a routine and healthy bull market pullback of 5-10%. That’s where we are today.

Apple’s somewhat rotten earnings are the headline of the day, but that shouldn’t be a long-term drag. There are other, more important macro concerns at this point. Yesterday, I wrote about the likelihood of a very short-term bounce developing in the stock market, but the bulls are not making it easy. After declines like we have seen over the past few sessions, it is typical to see either a washout where stocks open sharply lower and then firm throughout the day or s snap back where stocks higher and continue higher all day. We have not seen either set up yet.

The possibility for a Turnaround Tuesday exists today although the Dow and S&P are not tipping their hand as we approach the open. The bulls are supposed to make a little stand today. With bonds weakening yesterday during the decline, that is another clue for some attempted firmness today. I would become more concerned if we see rallies fail during the day and the major indices close at their lows.