One characteristic of the very volatile rally since early June has been an almost immediate giveback of a good proportion of any 3-7 day rally in the ensuing days. This has created a very jagged pattern where much of the rally has come on a news event, rumor, or European catalyst overnight creating gap ups, followed by a few days of rallying only to see usually 66% of the move given back almost immediately. Then just as the market seemed poised to roll over in that 3-7 day period we'd get the next rumor, news event, or European catalyst and repeat the cycle. Last week was the a break of that pattern.
With the normal caveats of the lagging nature of transports and to a degree the Russell 2000 – last week's action marked a constructive tone by the fact it was digestive without giving back a ton of progress. In fact after the session Monday, the S&P 500 held the previous week's high Tuesday thru Friday. While there are gaps to fill galore, and volume is very poor due to major decision makers off on holiday, one has to acknowledge the changes seen in composure of the market. As mentioned last week, similar to early January we saw a "change on a dime" in what groups were working to pro-cyclical. Semis, oil related, and industrials continue to be areas to watch – with a laggard transport group raising eyebrows.
Economic news was generally dour overseas last week. China was especially poor Thursday and Friday, but with those weak data points came fervor for more central bank and/or government easing. In fact the rumor mill was chock full of ideas that something would be announced this weekend – which I believe led to the end of day rally in the S&P 500 Friday. This has not happened but again we are in one of those sweet spots where bad news is good news (since it means more easing coming) and good news is good as well, as long as it is not SO good as to take away the potential for major moves coming from central banks. We've seen this scenario many times the past 4 years.
Earnings season is over by and large although we still have some individual names which report out of season. The economic docket is pretty full with some key reports as follows:
Tuesday – Purchase Price index, with an expectation of 0.2% (same for core). Retail sales with expectation of 0.3%, 0.4% ex autos.
Wednesday – Consumer Price index, with an expectation of 0.2% (same for core).
We also have 2 Fed regional surveys (NY and Philly), a few housing reports, and consumer confidence Friday.
While last week was extremely quiet intraday it seems eventually we will have something to shake things up one way or the other.
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