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Market Recap: Just A Technical Bounce?.

  • Written by Syndicated Publisher 55 Comments55 Comments Comments
    August 24, 2011

    Looking purely at the closing price today was a strong day, no question about it. Looking internally and at other products the reality that today was simply a technical bounce becomes clear. What probably gave this market extra support was when the Friday intraday highs were taken out.

    Now technical traders will argue this is a new leg up based on the fact that three attempts at breaking the 1,120-1122 intraday lows failed. As repeated countless times this market is emotionally charged and highly leveraged. I believe psychology not technical and or macro data drives prices.

    Bounces in downtrends can be vicious and doubt can easily creep in. If you need a reminder, please read this post from August 8, 2011.

    Below are various details of today’s market action.

    Volume

    Just look at the inverse relationship to price (SPY daily below). Simply stated more people want out than those who want in.

    Redemptions

    We did not see selling pressure into the close today which does not support the belief that redemptions are a problem yet. Monday’s price action looked as such but not so today. The next few closes will shed more insight.

    Bank Of America and Goldman Sachs

    Other than catching a very late day bid, lots of technical damage has been done on these two stocks. Sitting back at spring 2009 lows over two years of gains have been wiped out in short order. BAC continues to represent contagion risk to the US banking system. Whether it’s counter party risk or simply “guilt by association” the further BAC moves lower the further the entire sector does.

    BAC today publicly went after a blogger citing his previous issues with the SEC versus discussing the real issues they face, primarily the lack of capital, exposure to housing and a business model unable to grow earnings. They continue to appear unable and or unwilling to address investor concerns. By the way, notice in this morning’s post 6.31 was referenced as a key technical level for BAC. Well it closed at 6.30. Bearish sign for sure.

    Copper and Oil

    With a market up over 3% one sign of risk truly back on would be a rise in commodities to rival such strength but no such luck. Copper was up less than 1% and oil, already down 15% for the month managed a 2% gain. Unimpressive sign of risk back on.

    Bonds

    The 10 year gained 5 basis points and the 30 year 8bp. Not much of a slide in bonds when equities were up so much. I’m surprised bonds sold off even that much in the face of horrible housing data and further contraction in the Richmond Fed survey at minus 10 versus minus 1 the prior month.

    SPX Technicals

    Below is a daily SPX chart. Currently the 50% retrace at 1,164 is sitting just above with major resistance at the 1,210-15 area. Since the downtrend line was tested and failed on August 5, I don’t believe 1,215 is a must for technical reasons.  Additionally the previous high of 1,208 will act as resistance.

     

    And of course an earthquake is always bullish for equities (he said sarcastically in case you missed the joke).

    From

    Market Recap Tuesday August 23, 2011- Macro Story.

    Images: Flickr (licence attribution)

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