Following another gap down and the market down ~5% in just 5 sessions, we should just be happy it reversed and closed green (2% low to high), right? Unfortunately, that’s not enough if we want a ‘real’ bullish reversal that can last into September. Something was missing.
Still, what the market failed to do Tuesday, it managed to do it today as an alerted possibility in the morning. The difference in what was almost a mirror image of previous day from premarket to 10am data was that the market was able to turn green with DJIA being the last of the indicies in the afternoon to do so. The thinking was it would trigger a different end result than the late sell off just 24 hrs before after it failed to go green. The end result being a good close as more short covering would be come in.
So, what’s "missing" in the reversal and good close?. Not to knit- pick, but if a fresh melt up for days is to ensue, the ‘metals’ are usually part of a rotation into a risk trade in the beginning. Forget about the ‘financials’ as a necessity for a rally (which is long gone market after thought), but the steels notably X’ and also FCX have to turn as well. It’s surprising that as the TSY to equity rotation occurred today, this risk trade didn’t involve the ’metals’ , basically only beaten up techs outperformed. The probability of this reversal being the real thing is diminished by this non-action unless Bernanke pulls a rabbit out of his hat on Friday. Still, it was a good retest of 1040 and may get more short covering into Ben’s address, but to go beyond ~1065 is not going to happen unless real conviction money/buyers shows up with metals turning.
The most interesting aspect to the market is reaction to “WORSE THAN FEARED “ , macro data last 2 days. All this data shows is it’s not a drip, drip in the economy, but a rapidly falling one and the market is acting as if it’s priced into the market. This seems almost implausible as double dip chances increase day by day. What this may signal is the market is “overwhelmingly expecting “ a short term snapback rally as we got all possible bad macro news out of the way for now. Eventually, it will get back on the worry macro train, but for a few days it can run freely is probably all we are being told.