Tone Deaf to Growth for Now

As we suggested yesterday the markets saw further downside and rather quickly at that. The NASDAQ has now declined better than 5% from its high with the S&P 500 down about 4.7%. The averages are now within the range that contained all previous corrections off the March bottom, which have been approximately 4 – 8%.

That doesn’t mean there isn’t more downside ahead. The volume flush at the close into the lows of the day bodes poorly for tomorrow’s session, the pace of which will be dictated by the pre-market jobs report. Clearly many traders did not want to be long in front of a major economic release in a market environment that needs little excuse to interpret things bearishly.

As we’ve discussed the market has seized on flys in the growth story ointment as an excuse to correct. It’s not as if good news doesn’t abound. Pending home sales gained for the seventh consecutive month. And although the US ISM reading missed expectations it remained comfortably above the 50 point for the second month in a row signaling that the economy is expanding. The new orders component was above 60. This should have overshadowed the regional report yesterday that indicated a return to contraction. But the market has turned tone deaf to the green shoots story for now.

Leading stocks remain secure in their uptrends. Many are pulling back in light volume. This is a sign of likely continuation of the rally once the correction has run its course, which we still believe will await the release of earnings reports.

But new buys are not working and should thus be avoided. Cash is king except for positions with fat gains initiated earlier in the rally that should continue to be held in the hopes of adding to them once the dust settles.