Stop me if you have heard this one before. The market opened down, there was some threat of breaking a key technical moving average, but out of the ether comes a story about the threat of central bank easing. Market spikes. Yes it happened again today; in fact it was a two for one special. In the U.S. the WSJ released a letter with Congressperson Darrell Issa and in the Q&A portion the comment:
"There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery."
...immediately sent the markets in a tizzy with a 5 point S&P spike in minutes. The heavily traded SPY ETF (which tracks the S&P 500) had an astounding 1.8M shares trade in a 1 minute period (11:16 AM), showing how many algos are out there reading and reacting to headlines. To put that in perspective there are many minutes when 100-150K shares trade. Almost immediately after a Reuters story hit that reiterated that the European Central Bank is debating interest rate limitations on sovereign debt. This was reported over the weekend by German magazine Der Spiegel, but in this market you can repeat the same news story a multitude of times and get the shorts on the run.
The S&P 500 gained 0.65% and the NASDAQ 0.54% - despite that the S&P 500 fell half a percent for the week but it was a victory for the bulls as many weeks in a row of gains were consolidated in a very orderly fashion. In fact the timing of these "intervention" comments was perfect as the S&P 500 was just about ready to bounce off its 20 day moving average. Sometimes you swear these folks have technical analyts on their staff waiting to fire the appropriate rumor or interview.
The S&P 500 continued in its ascending channel, and finally pulled off the very top end of it, bouncing off the 20 day moving average...
The NASDAQ broke out of a bull flag and while a more sloppy pattern has held in as leadership stock Apple remains on fire.
Unfortunately semiconductors - a pro cyclical sector one wants to see acting very well to confirm the action - had a rough week, but all is not yet lost here. It would definitely be a positive to see this group rebound next week.
Transports likewise had a very bumpy road (pun intended).
U.S. bonds were expected to at least put in an oversold bounce, which did happen this week, but as mentioned above the damage to all risk assets was contained.
Meanwhile gold did not fall for the headfake yesterday by Fed participatant James Bullard that the FOMC minutes were "stale" and hence more easing may not be coming - after a big push this week it held in like a champ late in the week. Continue to monitor this commodity as it is a play on the devaluation of currencies happening across the world, and potentially accelerating very soon by both the ECB and U.S. Fed.
So it was another mostly rough week of economic data - European and Chinese flash Purchasing Managers indexes were poor, durable goods were down for the 4th month out of 5, initial job claims spiked a bit, etc ... but the market really only cares about central banks to the rescue at this point, so until this changes it must be respected. Both "the Bernank" and Draghi will make appearances at Jackson Hole, WY late next week which will dominate traders minds as we approach the Labor Day holiday. See you Monday.
