Tech stocks showed the first signs of profit taking yesterday.

PRE-OPEN MARKET COMMENTS WEDNESDAY – There wasn’t any news to justify the drop in tech stocks yesterday and the selling pressure was persistent. The market opened on its high and it closed on its low for the day. The volume was above the 10-day average and the bounces during the day didn’t even challenge VWAP. VXX also closed on its high for the day.

We’ve seen one day market drops in the last few months and they have all been scooped up a couple of days later. There has not been any follow through to speak of so we shouldn’t expect it. This morning the S&P 500 is flat.

QQQ was weak relative to SPY and high flying tech stocks were hit the hardest. Both QQQ and SPY finished below the high from July 31st and this is a failed breakout.

The FOMC Minutes will be released this afternoon. I don’t think this news will change the narrative much since it doesn’t include the hot PPI reading last week. All eyes will be focused on Friday’s Jackson Hole conference where Powell will speak 30 minutes after the open. The market has priced in a 25 basis point rate cut in September based on Fed Fund futures and anything that suggests otherwise will not be well received by the market.

Initial jobless claims will be release tomorrow, but they can’t be trusted. Employment has continued to decline and this number has not been rising like it should. If it spikes to 240K or higher, it will get noticed. If it stays around the 225K level it will not move the market. Flash PMIs will also be posted, but they have not had much of a market impact in the last two months. Global conditions continue to be soft.

The market drop yesterday was just some profit taking ahead of Powell’s speech Friday. VXX spiked as Asset Managers bought protection ahead of the event and options IVs were juiced to price in uncertainty.

Maybe yesterday’s drop is a warning sign that Powell is not going to cut rates. Maybe yesterday’s drop was program driven to lure in bearish specs. If Powell confirms that they are leaning towards easing in September bears will be trapped and they will take big losses. Who knows at this juncture. We don’t guess, we read price action and we wait for the reaction.

All of the recent dips have not gained traction and all of them have been scooped up. Even though the selling was steady yesterday, we don’t have any overnight follow through. If that decline was legitimate and there is “risk off” here’s how we’ll know. There will be a brief attempt to rally the market this morning and to recover some of yesterday’s losses. If that early bounce is smacked down immediately, that is the follow through we need to see. It needs to come on heavy volume and it needs to be steady. If we get that it would confirm that there is selling pressure. On the other hand, if the market holds the low from Tuesday for a couple of hours, buyers will step in and it will be a sign that the drop was a “one off”.

Here’s what I know. We need a market decline to shake things up. At minimum we need to get down to the 50-day MA. Without a move like that we will be trapped in this malaise where the market floats higher on light volume and compressed intraday ranges.

Watch for that early bounce that immediately gets smacked down. Steady selling pressure on good volume and a close on the low of the day would confirm profit taking/risk off. We haven’t seen this for months. I’m not expecting it, but I’ll short if I see it. If investors were genuinely concerned we would have seen more overnight selling.

Major news is pending this afternoon and Friday morning. That means the most likely scenario is dull trading where we move inside of yesterday’s range and sit for the next two days.

Support is at the low from Tuesday and resistance is at $640 and $642.