Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Yesterday was the second session of serious selling in the month of August, but after undercutting the lows of last week by 1 point, the S&P 500 staged a knee jerk bounce in the afternoon before selling off relatively sharply in the last 30 minutes. Technically yesterday’s action created the first “lower low” of the summer but by 1 point and it was intraday rather on the close so for those coloring outside the lines it can be ignored. While there are numerous gaps in the mid to upper 1300s that should fill at some point, the index condition still is ok even as a lot of key sectors look bad. For the bulls to see a sustained move from here getting back over 1420 and a new breach of year highs will be key or else a potential bearish head and shoulders formation could be created.
That said areas like semiconductors, energy, and transports (which should be leaders of a pro cyclical rally) are now relatively oversold and prone for that dead cat bounce. For example:
This morning futures are up on recycled news of a bank license potential in Europe – we’ve heard this one countless times before. Looking back at the summer the majority of the gains have come in the premarket/overnight session meaning you have to be in and subject to the day to day losses to have a chance to benefit from the gap ups. It will remain to be seen if the market will be ok with Bernanke most likely repeating the same “all options are on the table” song and dance which seems to be the belief in the market right now. Keep in mind the Fed surveys “big shots” in NYC to see what *they* think the Fed will do, so that the Fed doesn’t “disappoint” – so they have a good gauge of expectations and how to walk them up or down as needed. It is looking like next week is going to be more of the focus with all the key economic data and the ECB.
For now until/unless the low 1390s breaks on the S&P 500 there is not much change to the technical condition of the index, even though the groups that are leading the charge are not ones that are pointing to substantial economic rebound. I guess this can be termed a central bank liquidity market/leadership group.
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