Last Friday I wrote a piece which included this comment:
Perhaps the best tell would be if next week we received bad economic news on either/or ISMs/employment and the market still rallied.
We received that bad news yesterday in a putrid ISM Manufacturing figure, and indeed after the knee jerk reaction downward (which was relatively muted) the market fought back all day to finish in the green. All things considered equal, this is a positive development – whatever the reasons for the strength are (in this case, bad news = more QE coming).
The action since Thursday 2:30 PM when the market looked poised to fall off a cliff has been obviously strong. A big rally in the last 90 minutes Thursday since Merkel cancelled a press conference, the news overnight Thursday which led to a massive gap up Friday, and then yesterday where bad news from around the world did little to dampen spirits. So we appear to be back to the "good news is good news and bad news is good news too since it means intervention" market. Who knows how long it lasts but the lack of reaction to bad news is something to take note of.
With all that said the ferociousness of the move off the Thursday 2:30 PMish low has created some serious overbought conditions in the short run. Two indicators I look at are at levels rarely reached. Both are at extremes reached only six times in the past three years. That need not lead to a big selloff but it would indicate difficulty in reaching for an immediate move upward of significance. Which makes the news flow Thursday and Friday very interesting as we have the ECB meeting Thursday morning and non manufacturing ISM later that day, while the employment report comes Friday. With the bar lowered by Monday's poor economic data any decent number can now be celebrated with the normal "better than expected" or at least "not as bad as the ISM manufacturing report" indicated. If we did see an immediate jump of 1%+ say Thursday from these sort of reports, it would mark some of these short term indicators at "not seen before" extremes over the last 3 years. So it's an interesting situation developing in the very near term, especially with the normally "happy" holiday trading period.
Remember we have a shortened session today ahead of the holiday tomorrow.
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