It might look all hunky-dory with a recovery of about 35% of the SPX correction, but don’t say that to all the stocks,  particularly small caps, NDX -4.5% YTD,  commods/SP materials -5%YTD that everything is okay as they’ve hardly made up anything close to 35%!.  Damage was accomplished!.

End of last week,  we discussed the ‘reckless’ selling that was reminiscent of end of the month actions of hedgies we see a few times a year.   This is looking for and more like it as the market has bounced to the start a new month.   You can conclude this by asking one question, “where the sellers go?”.  If liquidation as witnessed all of a sudden ends,  it’s a clear sign of who was responsible.   Also, if every uptick was being sold as in profit takers last week, where’d they go?.  Well, they probably didn’t exist either, it was just the hedgie liquidation using the upticks to sell into some more.   Today, volume picked up over Monday, which is a good sign as some buy dipping was back helping out the short covering allowing stocks to move upwards.   Still,  we don’t think many are comfortable to add just yet and drive this higher as in chasing momentum. 

Also,  last week we said it may be a blessing to have the peak of earnings pass.  Today, all we heard was the ‘happy’ reactions to earnings from the Industrials/ capital goods stocks EMR CMI, DHI (builder).  But, as we’ve sayed before,  selling the news is primarily in the big name stocks,  it’s just so overplayed in the media that it seems all earning reports are treated the same way. They’re not, but as long as the media now says things are changing this week as earning releases we’re not selling off…we say good keep the hype up and maybe change the mood of the investor. We’ll see what CSCO does, but we’re not of the view selling the news won’t stop in the big names, it’s just that there are not many of them left to keep this theme rolling on.

So what now?. Just as we said last Monday in alerts and in the Journal that night…"Still, we’d like to breach and close over 1105 before thinking all is closer to normalcy”.   If this occurs with some authority the tone becomes more positive.   Still, with all the noise slowly abating since really mid- late last week, Greece, Obama, China (may get even better as New year week holiday Jan14th coming),  we should’ve breached this level already.   Instead,  the late January liquidation into November gap has made this a longer trip back.