SUMMARY:
- Hedge funds, stagflation, oil, weaker European economic readings fuel negative session.
- Sentiment polls continue to soften.
- UK retail sales hit a 10 year low.
- Bonds enjoy a nice boost of foreign investment.
- Still modest volume, but putative leader SP500 takes a hard drop.
- Pessimism remains high even as market has made this bounce.
A lot of mud flying through the air.
Tuesday was one of those sessions where they seemed to be manufacturing bad news just so they could keep up with investor demand. There were real stories relating to earnings, oil back to $52/bbl, UK retail sales and the Treasury auction, and there were also some rumors about a hedge fund or two or three imploding due to the 'GM trade' (long the bonds, short the stock) had blown up in their face on the Kerkorian news. For good measure there was talk about the stagflation and the new one about the jobs data being overstated, but frankly, all government data is over or understated on a monthly basis due to seasonal adjustments and new ways of looking at the data. Why do you think that the revisions are the key each month? That is when we get to see the real story. Overstated? Understated? Tell me something new.
There was plenty to keep investors defensive even without the embellishment, but that need for negative news only shows how negative the current sentiment remains even with this bounce higher the past week. It was definitely a day where investors actively sought reasons to sell even in the face of some decent counterbalancing data. One of the worries the past six months, at least in the political arena, is the trade gap and whether foreign investors and central banks are going to shun us like a druid in an Amish settlement. That didn't happen Tuesday with foreign investment easily exceeding the historical average.
Stocks sold early, held support, and then rebounded to cut those losses nicely. That did not hold the day. After lunch a surge rolled over quickly and the indices hit new session lows. A late bounce hopped NASDAQ and SP500 back above near support, but far, far from closing near positive territory. Moreover, volume rose on the session as distribution started to waft back into the picture. Of course after two extremely low volume sessions Friday and Monday, any volume, even the below average levels Tuesday, would be higher.
The most troubling aspect of the session for the upside action was how SP500 got really whacked. Yes volume was up just slightly and still below average, but SP500 slammed lower in price. It managed to hold the neckline of the head and shoulders pattern, but that was about all. As the leader in this rebound attempt, to see SP500 get belted around that way was not the most promising action. |
