Terrible Tuesday

The stock market decided to trade down on Tuesday, even after a down Monday. The early “reason” for the decline in the market was the lower consumer confidence number. The Conference Board reported that consumer confidence fell to 105.0 for August after being 111.9 in July. To put this “drag” on the market in perspective, we note that the expectation for consumer confidence was for it to go down to 104.0 so the real number was even better than expectations. So, how is it again that the consumer confidence number was the reason for the early decline in stocks???

The market did struggle all day long with the worst coming right after the release of the Fed’s minutes from its early August meeting. These minutes said that the Fed was going to be ready to act should anything pop up in the economy. The market jumped around a bit right after that news but after a few minutes started to push lower and basically went out on the lows for the day.

The message here is that the market is vulnerable to more declines. This one came out of nowhere and left many market participants scratching their heads and selling. We didn’t expect this decline to carry as far as it did. We thought the market would hold up this week and then drop next week after everyone is back from vacations. So, Wednesday’s action will be important to the down move we expect.

After moving up out of the 12,500 range a couple of weeks ago, the market is now making a move to go lower. In Elliott wave speak, the market had an undeniable five wave down move since Monday’s highs so that portends more on the downside. The nonconfirmation in the major indexes on Monday is another clue for us to consider. Today’s volume was not very high but the overwhelming majority of it was on the downside. We call these 90% negative days with more than 90% of the total volume is down. There are some sellers out there, that’s for sure.

This evening the futures are not making any bets on Wednesday’s trading either. Normally, after a big down day, the nibblers are out there trying to “buy the dip” but not this evening.