While You Were Eating & Shopping… « Market Montage

Markets are gapping up the traditional 0.2-0.4% this morning as the key S&P 1395 is probed repeatedly in the futures market.  Thus far – excluding the roaring move Monday – this week has been the traditional Thanksgiving week fare – a light volume, slow motion grind up.  Last year was the exception to the rule as European issues ruled the roost and the week was among the worst of all time.   Today will be the lightest volume day of them all, as markets close early.

While in pure technical analysis parlance we've seen a selloff on heavy volume the past two months and this counter trend rally on light volume (partially explained by the holiday week), using volume as an indicator has become an arcane methodology since the Fed induced liquidity spigot in 2009.  Stocks have often levitated for months on light volumes providing no confirmation to price, but in the end price is all that matters so this is an area pure technicians certainly have had to rip up their textbooks the past 4 years.  That said if you are old school this is classic correction activity with the move up coming on poor volume.

While Americans were busy stuffing their faces, observing the traditional "Trampling of the Walmart Shopper" holiday, and watching the referees steal a game from the Detroit Lions Europe and China announced their flash purchasing manager indexes.  Everyone is looking for sign of some bottoming action in China as it (not the U.S.) was the true lever that turned the global economy in 2009 with a massive stimulus (relative to their GDP).  Of course a lot of that stimulus turned into bad investments which the country is now paying for but that is neither here nor there for the markets.  While Europe continued to offer very poor data, China's PMI's showed some improvement.

  • HSBC's  flash purchasing managers index for November came out at 50.4, compared with a final reading for October of 49.5, indicating an expansion for the first time in 13 months.

That said China's market did not react very well to the data falling yet again yesterday.  A strange dichotomy.

As for Europe, it remains in a cess pool:

  • The Markit Eurozone PMI Composite Output Index was little-changed in November according to the flash estimate, up fractionally from 45.7 in October to 45.8. October’s reading had been the lowest since June 2009 and, for the fourth quarter of 2012 so far, PMI data suggest the strongest contraction of output since the second quarter of 2009.
  • Activity has now fallen in 14 of the last 15 months, with the exception being a marginal increase seen in January. Output fell sharply in both the manufacturing and service sectors and, while the former saw the rate of contraction ease slightly, the latter saw business activity fall at a rate not seen since July 2009.  By country, the rates of decline in output eased in both France and Germany but remained substantial, notably in France.

 

As mentioned Wednesday it gets "complicated" from here as every 5-10 S&P points above this level offers a type of resistance.  If the market churns through all this resistance in the weeks ahead and gets back over the 1430s in the S&P 500 then the bulls have something to hang their hats on.  Otherwise it's a typical brisk rally within the context of a continued correction.

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