I read in the twittersphere that the market has rallied in the last hour 9 of the past 10 sessions. This despite the last 5 being down days. Those late day spikes do a good job of keeping bears on their toes and hesitant to push their bets as almost all the gains of the past 3-4 months have come via overnight gap ups. Of course, the market likes to frustrate as many as it can and sometimes the late day squeezes such as yesterday shake out bears just in time for a substantial gap down. Which looks like the course of action today.
I mentioned yesterday morning the S&P 500 was nearing a trend line, and yesterday's late day rally pushed right off that trend line – see orange line below. This level also coincided with the 50 day moving average – so one could lapse into thought of "that's relatively bullish". Again, only to be slapped in the face with a gap down this morning.
One "positive" is we are finally going to fill the European summit gap this morning, that is at 1331.5 – the high of Thursday June 28th. (You can't see the gaps in the stockcharts.com S&P 500 chart, but they are clear on the SPY ETF chart)
Bigger picture it's been a very difficult market since April. Anyone utilizing a trend trading strategy has nowhere to go because just as a market creates a base, and starts to rally (usually coinciding with an IBD "Follow Through Day") that has almost been the end of the move. Hence the environment is very similar to second half 2011 where we have violent moves up and down in short spaces and instead of following through on strength the only profit pockets are buying extreme weakness and then dumping exposure within a handful of days. Of course being a day or three early on your buys can lead to substantial losses as well.
Turning back to the macro this morning's weakness seems to be some fallout from the lack of clear QE language in the Fed minutes yesterday afternoon, and then worry about China's GDP release tonight. The data out of China has been very poor for months so it should be no surprise that GDP will be "weak" – but who knows what number the Chinese manufacture for our eyes.
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