After a few days of lost momentum and yesterday's dark candle (possible distribution day), we are yet again at a familiar point (around 1100). Market tone will improve if we can climb and close over 1100. Just like the previous THREE times, we bounced off SPX 1085-1082 gap area as noted yesterday and prevented the market from a technical breakdown. Although, it might have seemed the market was vulnerable today for a breakdown at 1085 after more sovereign worries hit late premarket, some encouraging signs were present that we wouldn’t. Notably, momentum names like GS (let’s see if it can put back to back days before getting giddy) and AAPL were trading well in the morning and later the >2% decline crude didn‘t break the tape. Tech sprinted into the close was a late positive as well. This is a good set up to follow through, if Jobless claims <400K is nice surprise tomorrow as we had a bullish reversal day overall, technically speaking.
As we have pointed out, we have been dealing with congestion for 4 weeks now. A congestion as long as this definitely requires some convincing volume and catalyst to break out of. Of course, this logic can be applied to both directions and at this point, we are lacking both the super positive/ super negative catalysts to break out of this congestion. Last Friday was about as close of a good catalyst we had (NFP report) to break out of the high, but we failed at that.
However, not all of the sectors and plays on our screen share the same kind of story as the indicies. While the index might be at a long congestion, financial and commodity sector have seen their share of decline for many days now. Yet, this market is still holding at a reasonable range. Betting on a rebound from the battered financial or commodity sector can definitely provide a lift to the overall market. The question is, can we do it? As far as financial sector is concerned, we have all been made aware that the Govt' is pushing for the banks to exit the TARP program. This effectively means that all those companies who used TARP need to raise capital in order to pay off the money they borrowed. Bank of America has announced a hefty secondary and Citi just announced today that they are doing the same. This is keeping pressure on the entire sector, but this is removing a 'overhang' as we stated right after BAC’s plan.
As far as commodity sector is concerned, we have finally seen some positive action today despite an early higher USD and crude slide. This action was led b the steels after another AKS price raise yesterday, this is a positive for our fave steel X more than other steel names.
Believe it or not, we have about a week before the holiday week and it's a bit natural to expect the market action to calm down a bit. After all, no matter how you look at things, this market has had a good year so far. Nobody, except the Bears want to spoil things and the mentality developed by this market going into this holiday. This is probably why the sovereign issues are not beating up the market. The big funds may or may not want to push this market a lot higher going into the year end, but, we know that they aren't in the selling spirit either. Bottom line, given what we know, we will continue to trade the same we've been doing and hope to finish the year on a high note.