Stock Market Early Morning Insights – October 28, 2016

I read this morning that about 50% of the companies in the S&P 500 have reported earnings, earnings are up, and 73% of the firms have beat estimates on profit. http://www.investing.com/news/stock-market-news/u.s.-stock-futures-flat-ahead-of-q3-gdp-as-earnings-hit-halfway-mark-435562

Although this seems like good news on the surface, the broader markets are certainly not reflecting optimism about earnings, and there is a general malaise. The S&P 400 mid-cap in the S&P 600 small-cap indexes continued falling yesterday, and the NASDAQ composite registered and ugly reversal candle after the open on above average volume. Volume also was heavier for the 400 and the 600. There is no question that investors are dumping stocks, and if this does not reverse soon, we can see a total breakdown in the indexes.

The NASDAQ composite and the NASDAQ 100 are holding up much better than the small-cap indexes, but both are struggling. The S&P 500 remains in a trading range and is holding above support, but it has formed a series of lower highs and lower lows. Risk is extremely high both on the long and short sides. The indexes are getting down into areas which could precede a snapback rally, but if that happens, it could just be another opportunity to unload stocks into a rally. That’s what we saw early this week after Monday’s rally.

Amazon disappointed, but Google beat estimates. They are heading in opposite directions this morning. Many of the leadership stocks are pulling back, which is not a good omen for the broader markets. Compound that with the weak mid-and small-cap indexes, and stocks look very vulnerable. One thing we always must remember is that this is a market of stocks, not a stock market, and there are always stocks moving prior to the prevailing trends. Flip through the top 50 GIR list and you will find several examples.

I expect the indexes to continue to chop around, especially the NASDAQ composite, but the small and mid-cap Indexes must find support soon. This could be about election anxiety, valuations, or both. Fear is the dominant emotion in the broader markets.

STOCK MARKET EARLY MORNING INSIGHTS

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