Is the Tide Turning?
Traders dealt with an abundance of inputs on Thursday. And while the news was definitely not positive across the board, it appears that the end result was. Thus, the argument can be made that when a market stops going down on bad news it means that those who wanted to sell have likely already done so. And if this is the case, then the long awaited bottom to the current corrective phase may be close at hand and the tide to this fairly miserable environment might be turning.
To be sure, calling tops and bottoms of intermediate-term market moves is a dangerous game. As Marty Zweig so famously said, "Those who rely on a crystal ball will wind up with an awful lot of crushed glass in their portfolio." However, yesterday's "action" should provide hope to anyone still holding the view that the sky is not going to fall.
The day started on a negative note as traders began to fear that the powers-that-be in Europe just might muck up the new bailout of Greece and wind up triggering (accidental or otherwise) a "credit event" in the process. In case you are not familiar with the term, a credit event occurs when something happens to trigger the payment of credit default swaps. And since no one on the planet is really sure who holds these things, who owes what on the CDS's, or what the end result of such an event would be, the fact that the players within the EU continue to publically bicker over the terms of the new bailout deal caused traders to begin to fear the worst this week.
Then when we got the stunningly bad report from the Philly Fed General Business Activity Index, it looked like we might finally get that "whoosh" down that traders have been talking about. It also looked like the March lows were ready to be taken out and every technician in the game began hunting for the next logical stopping point for the bears. In short, things looked and felt bad.
However, a funny thing happened on the way to the wipeout - it just didn't happen. And in short, THIS is what traders call "good action," which is something that we haven't seen for the past seven weeks. While there had been a couple of other reports that were actually moderately positive (Housing Starts/Building Permits and Weekly Jobless Claims both came in above consensus expectations), the real key to what could be viewed as an improvement in the environment was the quick recovery from the Philly Fed news.
Before I take this too far, let me offer up a very important caveat. Yesterday's action is likely not the whistle telling us that it's okay to jump back into the pool. Make no mistake about it; this market remains a slave to both the news from across the pond and the economic data here at home. But if either can improve, then the bulls might be able to make a game of it again.
As I've been saying, I'm of the mind that the folks at the EU/ECB/IMF won't muck this up. Yes, there is likely to be some additional political wrangling and some chest thumping by politicians designed for the local constituencies. However, I am fairly sure that the guys and gals in charge "get" the fact that this situation is WAY too important to screw up. I feel confident that they will find a way to make sure Greece has the cash to cover its needs for the next two years and that a default will be avoided (for now). And if this comes to pass, the bulls will likely enjoy a rip-snorting good time.
However, the reason I caution against going "all in" and tapping that margin account here is the fact that the U.S. economy doesn't appear to be hitting on all cylinders at the moment. And while the case can easily be made that the current correction has discounted the "soft patch," the point is that should things slow down from here, well, we could have a problem.
So, while the tide MAY be turning for the current corrective phase, this is no time to be asleep at the switch.
Source: Top Stock Portfolios
About David Moenning
David Moenning Archive
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