Exhaustion Mode

Equities start the day lower as we continue to be in exhaustion mode.  It happens, I mean if you binge on Easter candy eventually you are going to have a reckoning where zucchini looks pretty good.   We opened at 1,996 on Feb 2 and closed at 2,117 on Mar 2, that’s a lot of peanut butter cups.   ADP jobs data was out pre market and it showed the same thing we’ve seen for the past 4 years:  212k jobs.   The 4 year average of this data point is 208k so make of it what you will (a lot finance twitter doesn’t even like the ADP report).    So here’s a question I’ve been kicking around while I stare at the ceiling waiting for the Z-quil to kick in:   what would blow us up?   I’m not talking about this kind of blown up (video makes me ill) I’m talking what would knock the market down 15-20%?    Would a Fed hike do it?  Maybe, and a Fed hike is one of my biggest worries (Fed and oil can kill markets), but that decline would be a long drawn out process.  A Chinese housing crash?  Maybe, but we’ve been worrying about that for years now, it wouldn’t exactly sneak up on us.  Stock Market valuations?   Sure, that’s one, but overvaluation can last years (many argue it already has).  Corp profit decline?   Absolutely, which is why we stare at the rate of change in earnings.  But let’s put those all aside and talk about one that really matters:  plain simple sentiment.  Just how people feel about the economy and stocks and the world around them.   Markets can move sharply on simple shifts in perception so that’s the one that makes me nervous.  Anyway, let’s move on to the day’s events and ponder that thought a bit later.

After the open, we spent a lot of time in the red as pullbacks were the story of the day.  One sector not in the red though was Hospitals, which went absolutely banoodles on this Obamacare Supreme Court thing.  You know you are in the weeds as a trader when you are scouring SCOTUS blogs for information.  I mean I thought SCOTUS blogs were about…actually forget it.  UHS / THC / CYH / LPNT, those kinds of names put in hockey sticks as a court of grizzled justices debated such awesome things as mandates and health exchanges.  I mean it’s possible that hospitals were up because Americans eat stuff like this but let’s just go with the headlines.  As we approached lunch the market found its footing and began to churn higher.   Not sharp or sudden but enough to make people perk up.   Volume was tame but it’s been tame for a month now.  These “no news” higher markets just suck  interest out of the investing world.  Other than Health Care / Biotech names we saw nice returns from SNDK, GME, YHOO, and CAM.  Losers were CNX, CHK, AA, CTL, and FAST.   By lunch we sat on 2,098, down 46bps, on a fairly unremarkable day.

The final hour brought the Fed’s Beige Book but it didn’t affect the market one bit.  We closed at 2,098, down 46bps as the market continued to let off some steam.  So when I say a change in “sentiment” is what I really worry about all you have to do is look back at Oct of last year or Jan of this year.   No real groundbreaking news but the market sold off just because everyone was selling.  I know that sounds trite but this market will break one day, like it always does, and that break will begin as a subtle shift in sentiment.   We aren’t there yet, and let’s hope we can see it while it’s happening, but until that day it’s still a bull market.  Period.   Final Score:  Dow -58bps, S&P500 -44bps, Nasdaq -26bps, Rus2k -33bps. 

Volume was average.  Our desk was better to buy.  Buying in Health Care and Tech.  Selling in Utilites and Industrials.  Shorting in Consumer.  News Highlights:

I have two videos I want to finish with tonight but if I use them both I might run out for tmmrw.    Needless to say they are both awesome, come back Thursday to see it!