Monday was shaping up as an excellent day for the bulls until an afternoon headline hit from the Financial Times newspaper. Stocks had gapped up sharply at the open and had gone sideways for the better part of a few hours until this headline about Federal Reserve tapering hit the newswires. Immediately all the algorithms began selling which led to selling by humans and a big drop intraday. Some of this was recovered by the end of the session but what was looking like a clear breakout on the daily chart now becomes more muddled. You can see the mid afternoon volatility below around 2 PM, where the S&P 500 lost 8 points within half an hour and eventually fell as far as 13 points down from its 2 PM level. The S&P 500 added 0.76% and NASDAQ 0.83%. There was an interesting housing report today
The market remains within its fourth week of correction, versus the May 22nd top. Much like last week a very sharp rally led to little momentum and stocks stalled today at the top of the descending channel we have been following on the major indexes. There just is no momentum from day to day, and volatility remains high. The S&P 500 fell 0.59% and NASDAQ 0.63%. For the week the S&P 500 fell 1.01% and the NASDAQ 1.32%. Consumer sentiment retreated to 82.7 in June after hitting its highest in nearly six years in May, according to the Thomson Reuters/University of Michigan's preliminary reading. Next Wednesday we will have the Federal Reserve decision - expected to be unchanged - along with the quarterly press conference which will be impactful to markets considering the only thing people seem to talk about anymore is central bank actions.
Thursday saw very similar action to the previous Thursday. A quick dip down at the open followed by a reversal, and big move up with a close near the highs of the day. Often these type of days mark a bottom of a correction so we have to watch to see if that was it as it is too soon to tell. But bulls made some nice progress. Economic news was ok as weekly jobless claims fell again and retail sales climbed 0.6 percent in May, topping expectations for a gain of 0.4 percent. However near the end of the day the Wall Street Journal reported that an adjustment in the Federal Reserve's bond-buying program did not mean that the central bank would end "all at once" or that the Fed was "anywhere near raising short-term interest rates." Investors took this as an "all signals go" on the punch bowl being provided by the Fed and stocks rocketed upward immediately. The S&P 500 added 1.48% and the NASDAQ 1.32% Let's take a look at what signs to look for, to see if this was a lasting bottom technically.
The market remains in a corrective mode. Wednesday was particularly nasty as U.S. markets gapped up to start the day but sucked in buyers expecting a continued move upward, only to selloff almost the entire session. There was no particular news event to drive the action today, it was simply the continuation of a weak technical picture and worries about less quantitative easing, and some impact by the continued big moves in currency markets. The S&P 500 fell 0.84% and the NASDAQ 1.06%. As an aside today broke the DJIA long streak of no three consecutive losing sessions.
The markets remain in correction mode. After a sharp bounce off last Thursday's lows, we saw a quick day and a half rally. Monday was a small rally to begin the day but it has been mostly downside since. Tuesday was volatile with a gap down to begin the day as the Bank of Japan did not do anything to address market swings (not sure what people were expecting considering they have taken historic action already), and the markets gyrated from big losses to small losses, and then back to big losses late in the day. The currency markets continue to dominate as the yen had another significant rally, which as we noted last week has a lot of implications for many other markets as so many trades are interconnected. To that end Citibank was rumored to be facing a potential $7B capital loss due to currency trades. This showcases how many fingers are in so many pots and how something seemingly innocent can roil markets. The S&P 500 lost 1.02% and the NASDAQ 1.06%.