The S&P 500 is bouncing well off that new/old support which had held since November (see previous post), with the exception of the one break middle of last month. This is positive in the fact it reinforces it as a useful line to follow. Markets were in decent form this morning but then a news report that some ECB members were wanting "bolder" measures created a new leg up – essentially it's all about central bankers right now and until that changes it is status quo. Yesterday's bad economic data is already an afterthought. Tomorrow we have employment and ISM Non manufacturing – the weekly claims figures have actually improved quite nicely so it is a bit of a surprise that the monthly data has not done better.
But corporate profits are based on lean corporations with productive work bases – not hiring a slew of workers…especially as revenue growth is a major struggle. So what is good for Wall Street isn't necessarily going to be seen in an employment report.
You remember rate cuts right? Aww, the good ole days of central banking.
This was as the market
The S&P fell to a key area yesterday, one that has been the main support (with one break) the entire rally. Bulls will want to see this level re-established as useful.
The Russell 2000 is really taking it on the chin today with a bearish engulfing bar that has erased the last 5 sessions completely. While we came in to the day overbought short term it is not an easy market when you can erase a week worth's of gains in 1 session. This has been the pattern of April – quick moves down followed by the V shapes up. Unlike the DJIA, S&P and now NASDAQ we did not see a yearly high on the small cap index.
I mentioned two weeks ago a black swan for the fall is the Fed INCREASING QE – rather than the popular thought it will be tapering. Today's FOMC statement for the first time included the word "increase (or reduce)" asset purchases. And so the groundwork begins…
"prepared to increase or reduce" level of asset purchase program,
While this is a slight miss the bigger picture here is 50 is the dividing line between expansion and contraction. Yesterday we had Chicago PMI that was contractionary – the worst reading since late 2009 in fact. Today we have an expansionary U.S. ISM but just. New orders are the only decent bright spot in a relative sense – employment stunk and prices are 'deflating' (good for the Fed I guess) The market is up 7 out of 8 sessions so this could be a good excuse for some consolidation but the economic data has really slowed the past 6 weeks.