Thursday’s market action was not much different than Wednesday, and stocks again closed near their lows after Federal Reserve Chairman Ben Bernanke made it clearer that some version of quantitative easing, or QE3, is not around the corner. If you remember, after Bernanke’s testimony in front of Congress on Wednesday markets closed up for the day but had sold off into the close. This pattern has now taken place the last three trading days and makes the charts look weak. Friday is July options expiration — throw in that it’s another summer Friday, and trading is sure to be more confusing, not a great environment that allows for many high probability trades to set up.
On Thursday, I cautioned against buying too soon into the mini-correction of the past few days and after Thursday’s additional press lower we now might be somewhat closer to a buying point, but we must wait for confirmation.
JPMorgan (NYSE:JPM) announced solid earnings before the bell and while the stock closed up 1.8% for the day, that also ended up being the low of the session. The chart of the SPDR Financial Sector (NYSE:XLF) exchange-traded fund looks to be working its way back to the June lows, which isn’t a good sign for the overall market, given the importance of the financial sector as a whole. On the other hand, most other sectors in the S&P 500 remain in a healthy consolidation phase after the sharp up-move in late June and early July.
Also not looking its best are the semiconductors. In fact, the Philadelphia Semiconductor Index closed right at the June lows on Thursday and looks precarious for more downside.
Looking healthier, however, are the transports. The chart of the iShares Dow Jones Transportation Average (NYSE:IYT) exchange-traded fund shows that the transports have continually found support and resistance at the $96.50 area. I will be watching how this index behaves around those levels this time around. A bounce would be an indication that the broader market could lift higher as well.
After hours, Google (NASDAQ:GOOG) announced blowout earnings, and the stock is rallying. While that could lead to some optimism, we also have Citigroup (NYSE:C) announcing earnings ahead of the bell and the aforementioned option expiration games.
All in all, the tape is sending us mixed signals here, but an exhaustion selling point would still lead me to buy select setups for another few weeks.
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Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
