As I was saying during some of the massive oversold bounces in August and September, these are not signs of health but an over reactive, headline driven market where daytrading is dominating. The most vicious rallies come in bear markets and/or downturns – which is why it’s very difficult to be a dedicated short seller. A week of gains can go poof in one overnight session, or nowadays within minutes on a headline on a website.
Last week the 50 day simple moving average, after holding for 2 sessions, was broken. We had some waterfall action downward after that… some 50 S&P points in short order. Yesterday was of course a vicious kick to the upside – ironically mostly due to an IMF rescue package that was refuted…. but by that point the short covering had taken place and momentum fed on itself. But as we now see very often almost all of the move was in the overnight session and during the actual sessions from 9:45 AM onwards the market basically went sideways. Not much opportunity for those who actual buy stocks during the normal market hours.
Looking at that 50 day moving average once more (I am using the simple because that’s the only major MA within sniffing distance) we see it back around 1206. As always old support becomes new resistance…. until proven otherwise. And let me add all this technical mumbo jumbo means nothing once the ECB commits to a rescue. ;)
As an aside there was really nothing that positive outside of equity markets yesterday – European yields continued to act punk, and the euro didn’t really act very healthy. So it was a narrow day in terms of what markets were working (equity). That doesn’t really bode well – we’d want to see currencies, bonds, and equities working in concert to feel any confidence that this is much more than a much needed oversold bounce. (the S&P 500 had been down 7 sessions in a row)
Cliff Notes: Don’t Get Too Excited. If you are anything outside of a daytrader, it remains an environment to protect your assets.