Riding the Mechanical Bull Market Getting Tough

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Mechanical Bull Market

It’s common parlance when people say that the stock market is like a roller coaster, but it’s rarely meant to apply to a single trading day. Today’s trading session actually was like a roller coaster. Or perhaps a mechanical bull, or mechanical bear, depending on your perspective.

Just looking that at the Nasdaq (NASDAQ:QQQ), we can see what a dizzying day it was. Within the first half hour, tech stocks were down nearly a whole 1%, deteriorating down 1.25% by mid morning and briefly breaking the 5000 mark. From that point we embarked on a two-hour full percent recovery, topped with another full percent gain in the space of 15 minutes.

But that wasn’t nearly the end of it. In less than an hour we were back down a full percent again, recovering half that loss by 5 minutes to close. And finally, in the last five minutes of trading, we lost a whole 13 points on the Nasdaq, with after hours bringing all major indexes including the S&P (NYSEARCA:SPY) and the Dow (NYSEARCA:DIA) very near intraday lows.

One can point to a Fed leak, over-analysis of comments and words in the FOMC minutes and various speculations about whether there will be a Fed hike in September or not. But what today’s action shows pretty clearly is that nobody has a clue. Traders are split and antsy, and today’s action betrays that uneasiness.

Whatever happens in September at the Fed meeting, it will affect markets heavily at least short term. That much is clear as day.

Gold’s (NYSEARCA:GLD) intraday action on the other hand, looked like a step ladder, as each new burst in volatility in stocks led to a concurrent jump in precious metals. Gold is now 6% off its lows in late July.

Judging by the late sharp move down in equities 5 minutes before the close, indexes are likely to open down tomorrow morning at the bell, with support at 2040 on the S&P getting closer to being tested for a third time.

In the event that happens, those riding the mechanical bull will have to bet on a triple bottom. Those riding the mechanical bear will have to bet that 2040 gets broken.

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