Stock Market Early Morning Insights – September 1, 2016

Oil was the big story yesterday in the market. After the inventory numbers were released, the oil futures tanked, and never did recover. This affected the broader market, and stock indexes look like they were going to finally break below support, but the same pattern we have seen happened again. Much of the selling was absorbed, and the indexes closed in the upper two thirds of their daily trading ranges.

The VIX had risen sharply intraday, but only managed to close in the lower one third of its range. Once again, premium buyers trying to protect the downside, saw their money evaporate as the NASDAQ composite bounced off of support at the gap. Volume was higher, but much of this volume had to be absorption volume. You can tell this by looking at the Arms index for the NASDAQ which closed at .7905 indicating that several stocks within the index had more buying than selling.

The Canaries index of large-cap leading tech stocks contained five advancers, two decliners, and one unchanged. These stocks are going to have to collapse if this market is going down. Also, the top 50 GIR continues to be dominated by tech stocks rather than defensive stocks.

Money flowed into utility stocks yesterday, but the utilities are in a strong down trend, and it was another one-day bounce. Energy stocks took the brunt of the selling, and money flowed into Banks and REITs and into several Internet and tech related groups. Package food was as dominant in the stocks moving up, so some money was flowing into defensive stocks.

Anyone trading strictly by lagging indicators is more than likely getting whipsawed in this market. Most indicators are currently on sell signals, but support has not been breached in any of the major indexes or ETF market indexes. Take a look at the SPY, DIA, IWM, QQQ, and the other major market ETF’s, and you will see that they are all holding above support. The XLU, the Utility ETF has been broken for quite some time, but the major market indexes ETFs are holding up. The Russell ETFs and the semiconductor ETF, the SMH, both look very strong.

Volume should be falling off for the next few days as we head into the long Labor Day weekend. Employment numbers are coming out today and tomorrow which will have short-term effects on volatility. I remain neutral on the major market stock indexes until support is breached convincingly to the downside. What is more telling to me then the advancers versus decliners, is where the major market indexes and their companion ETFs closed for the day. Once again, we saw buying going into the close.

STOCK MARKET EARLY MORNING INSIGHTS

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