Stocks fell slightly at the open this morning before plunging shortly before noon. Several hours later, however, the market staged a miraculous rally into the close to flip both the Dow and S&P into positive territory. Only the Nasdaq Composite closed lower on the day of the three major indexes.
Bulls celebrated the general market’s meager gain as it broke the S&P’s four-session losing streak.
But will today’s close higher be enough to spur on a bullish reversal?
Probably not. Today’s slight gain, while certainly a welcome sight to bulls, didn’t really change the market’s short-term trend, which is still bearish.
The S&P touched support at 3,900 today before staging its late-day rally. Until we see a strong daily close from the index, however, there’s no reason to believe the selloff is over. Worse yet, if the S&P touches 3900 again and breaks through, a deeper descent likely awaits despite the market’s precipitous drop of the last week.
“Many metrics are flashing oversold signals, which combined with meaningful support around 3,900 suggests the bulls ‘should’ be able to stage a rally here,” said Jonathan Krinsky, chief market technician at BTIG.
“Given this set-up, should they fail to hold 3,900, we would have to say the June lows were back in play.”
Krinsky’s right in that the market does look oversold. But that doesn’t mean it can’t go lower.
Today’s afternoon reversal may be a “last gasp” prior to another dip following tomorrow morning’s August jobs report release.
“The view from market participants is the employment report is more important than the CPI inflation report in determining whether a 75 basis point or larger hike in September is more appropriate than a 50 basis point hike, and I think that’s the right view,” said B of A chief US economist Michael Gapen.
I’d argue it’s probably the wrong view. Fed Chairman Jerome Powell said Friday that the Fed would raise rates aggressively to beat back inflation no matter how much the US economy squeals. The jobs report would have to be truly dire to alter the Fed’s hike in September.
That being said, it might still be wise to look for trend-breaking bull setups on beaten-down stocks in the event that the market ends up rallying. Target Corporation (NYSE: TGT) is a great example of that after closing above its minor bearish trend (yellow trendline) and the 10-day moving average today.
The stochastic indicator also suggests that the stock has plenty of room to run after setting a higher low.
For those reasons, it might make sense to take TGT long with a trade trigger of $166.55, above today’s high, as the general market looks to rebound tomorrow.
