Here is the bounce...
Good morning folks. I am sorry that I didn't have a post for this morning, but I was out of the office doing a radio show for Bloomberg. In a market where bad news has dominated the investment landscape, the financial markets had become oversold and ripe for a bounce on any moderate, much less good news. The positive surprise in the ISM number provided just that new. The index itself coupled with the "new orders" component blew everyone away and stocks have spiked higher and bonds lower.
I tried to convey last week that the equity markets had moved to a level where any news - even moderately positive - could be enough to spark an oversold rally because the extent of the weakness without much pause, the pervasive nature of the negative news flow and how well known the negative factors were (geo-political, economic, corporate profit and valuation).
Today's action gets the year off to a solid start, but the same happened last year. In the first three sessions (intraday low to high) the SPX went up 40 points (1136-1176). The point is that last years gains proved to be temporary because it was a new year, but that didn't remove the negative influences.
This is a new year and the market has spiked higher due to the oversold condition more that any significant fundamental change. The ISM number is a great start for signs of a fundamental change, but it is only a start. The overriding geo-political, economic, corporate profit and valuation issues did not disappear because the ISM number was better than expected.
Since I have been calling for this oversold bounce (way too early), I have tried to outline that any rally or retest of early December levels (and even a break above them) should ultimately prove to be temporary because the intermediate-term picture has lost momentum and the issues that have driven the market lower remain in place with very little if any definable resolution.
Finally the oversold rally is here and could continue for a little bit - BUT decide how to use it to your advantage. If you were bemoaning that you owned stocks Tuesday, think of making some adjustments as the market moves higher from current levels. I continue to believe a retest of early December levels is possible, which would be 938 on the SPX. The SPX is currently at 900.
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