The Market Keeps its Own Counsel

Journalists are always attributing market activity to a certain news trigger that they can grasp and build a story around. But the market moves in broad arcs and what it does on any given day is often for no discernible reason and often not associated with that day’s news.

We mention this because it appears to us that the stock market was of a mind to sell off when it got out of bed this morning. In spite of encouraging pre-market news indicating that inflationary pressures remained well contained and industrial production picked up for the first time in ten months the market gapped down at the open and continued lower. Selling seemed determined from the opening bell.

The NASDAQ was already down over 0.75% when, at 9:55 AM EDT, journalists got their reason and headline for tomorrow’s financial sections. Consumer sentiment came in well below expectations. Upon release of the news the markets sank lower.

The sentiment results could not have been a surprise. Unemployment is high and likely to trend higher in the near term. Foreclosures remain high. Consumer spending is poor. And politicians in Washington DC are debating an unnerving number of lifestyle altering changes which have only added to fear and uncertainty. Consumers are simply morose.

While this could well be the beginning of the end for the March rally it should be noted that today’s selling is on lighter volume than yesterday. We are thus unlikely to chalk up a “distribution day.” Volume started out heavier but has lightened up. While it is true that summer Friday’s are well known for light volume as traders escape their desks early for destinations in the Hamptons, volume will find its way into the market when it needs to and it simply won’t today. That’s a saving grace for the bulls

Another is that many of the leading stocks we follow and have profiled are lower on the day but not selling off on volume.

While the market could continue lower on higher volume next week we don’t deal in hypotheticals. For now there is a distinct chance that the sell off that began today could lead to a buying opportunity should it continue to be low volume and constructive.