Monday, the question was how far the oversold bounce could go, and thus far it's been a good two day move. After the "worst week since June" markets have generally regained a good portion of those losses in just two sessions. There really have been no obvious culprits for the move other than a technical bounce and a lot of the same comments about an imminent request for bailout from Spain. I remember asking myself in the 2010-2011 period how many times they could rally the market on "imminent bailout" for Greece and a lesson was learned: the answer is countless. It still is bemusing to watch stocks move on the exact same news over and over – yes we all know a Spain bailout is coming but that doesn't stop us from reacting as if it's earth shattering news each time it is rumored.
Outside of that constant news item, economic data has been a mixed bag as have earnings. In fact, Intel and IBM both had poor reactions to their reports/guidance last evening (and this morning) but futures are up. There used to be a time that companies like these mattered but it's all about handouts/bailouts/rescues and the "central banker put" now… until it is not.
Taking a look at the charts we can see the S&P 500 fell to the low end of an ascending channel it has been in June; frankly it is a bit surprising the index stopped right on a dime when this level is now so obvious to everyone. You'd think there would a test of bulls resolve by a break of this level to shake out the weak before a potential reversal but that is not how it turned out.
The NASDAQ is more problematic and choppy but frankly as we all know it is all about Apple. The fate of the index will lie in the reaction to earnings of the stock next week. The two charts are very similar of late.
A lot of high beta tech has been struggling as there has been some rotation this week into commodity type areas… the Chinese stock market might be putting in some form of low as investors speculate for…. (wait for it) … imminent central banker/fiscal intervention. Low inflation figures from China over the weekend (how convenient) are serving to stoke the idea that the magic wand will soon come forth. With that the normal subjects (coal, steel, iron) are rallying. This has been the upteempth rally in some of these groups (see the chart of U.S. steel the past few months!) based on the same thesis or deflation of said thesis.
So at this point there has been the decent dead cat bounce but there are very few leadership sectors at this point. If anything some of the financials have been leading, but many of the groups of the past few months were hit very hard last week and their charts sustained some serious damage. Maybe they can simply "V shape" bounce as if it doesn't matter but this would be an atypical result. Seeing the NASDAQ and Russell 2000 lag is also an issue as these are the traditional "risk on" indexes – instead we have leadership by the Dow and S&P 500.
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