As was mentioned yesterday, after the two days of selling the next few sessions would be tricky - indeed that proved true. Once again, just as with the late December action, the S&P 500 broke below its ascending channel but shortly thereafter jumped right back into it, confounding bears. This time it was just a 1 day trip and it took a lot of buying pressure late in the day for this to be achieved. Investors walked in to a gap up open as comments from various Federal Reserve officials were leaked to the press (along with one very publicly on CNBC) essentially refuting the minutes from the central bank released mid week. The message they wanted to send was we are here and will have easy money for you for a long time, you need not worry. The long term effects of this continuous hand holding of the market are going to be bad, but in the short run this is the only thing that speculators wants to hear. And the market reacted as it typically did. The S&P 500 gained 0.88% and the NASDAQ 0.97%. There was no general theme today, a lot of the worst hit stocks bounced the largest amount as they were short term oversold.
Here are the two index charts - you can see the breakdown and then reversal noted above in the S&P 500 below. If this can hold over the next few sessions it might be back to business as usual, and this long national nightmare (a 2 day selloff) will be forgotten.
The NASDAQ bounced back as well, but as has been the theme throughout 2013 its chart is nowhere as near as attractive as the S&P 500.
One divergence in the theme this weak is the rotation out of aggressive sectors - which had been mostly leading this year - and into safe sectors. The two best areas were consumer staples (i.e. items you need to buy like toilet paper and diaper makers), and utilities. These are not usually hallmarks of bull market runs. If this continues next week and the indexes still rally it will raise some eyebrows.
Strangely commodities have been almost nowhere to be found in this rally of 2013. Oil has been a stagnant actor while gold and silver have been acting very poor. Copper acted well until this week when it rolled over and another group - the soft commodities, namely agriculture - have been awful.
The leading fertilizer stocks have followed suit - you can see very poor action out of Agrium (AGU) and Mosaic (MOS). This marks very different action than you usually see with such names during a "risk on" rally.
There are also some mines out there in the consumer space - after the Walmart leaked memo mid week, and a warning by Burger King on the weakened consumer, we saw lowered guidance today by teen retailer Abercrombie & Fitch (ANF). But thus far the market has mostly been in hear no evil, see no evil mode. This is starting to become enough companies that it is a pattern.
Abercrombie & Fitch Co. (ANF) declined the most in five months after the teen retailer forecast a loss for the first quarter, citing concern about the weak economy’s impact on sales. Abercrombie said it anticipates a “slight” loss in earnings per share in the first quarter compared with a 25-cent loss last year, citing a tough economy and difficulty tied to cold-weather inventory.
Next week will be a very busy one as the market makes up its mind if it will soon forget the mid week selloff. Bernanke testifies to Congress for 2 days (investors will only want to hear "hi we are from the pseudo government and we are here to print money") and a flurry of economic data will be released late in the week, both in the U.S. and overseas. Expect volatility to remain high.