Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
We saw the flash China PMI data about a week ago and while it was weak, it was explained away as due to the Lunar holiday. Europe – as we know by now – is existing under the “it can’t get worse” meme in terms of economic data i.e. the data is so low it must be a trough, and the only way from here is up. If true or not, it’s not a particularly bullish indication for a continent’s economy but it sure has been enough for the stock market(s). This morning 3 of the 4 major economies in Europe continue to show extreme weakness:
- France up 1 to 43.9
- Italy down 2 to 45.8
- Spain up 0.7 to 46.8
As for China, the official data which measures large, state backed companies came in worse than the flash report last week and barely expansionary at 50.1. And the HSBC figure which measures smaller companies degraded substantially as well (50.4 vs previous 52.3).
As I type, personal incomes for January were reported and posted their largest drop in 20 years. No surprise considering the payroll tax holiday expiration and a buffet of dividends pushed into late 2012 to take advantage of the old tax rates. Should be a few months out before all the noise from this # straightens out.
Late yesterday the indexes reversed pretty sharply after testing the sanity of bears with a straight shot 40 point rally from the depths of Tuesday’s losses. It used to be staircase up and elevator down but we often see elevator up nowadays. That said, the 1520 to 1525 area has been an area of congestion and after tipping its nose over the 1525 level, the S&P 500 retreated quite sharply late in the afternoon. Those 3 distribution days over the past week and a half didnt go away even in light of that neck swerving rally. We’ll continue to see if this is the latter part of a “head and shoulders” bearish pattern forming, or just another head fake for very tired bears.
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