Last week the S&P500 (SPX) suffered its worst week of the year, shedding 10 points, or 0.7%. As this week began anew SPX appeared well on the way to outdoing that, down by nearly 3% at its low for the week. However, a 2.2% rally off of the 1,357 low seen Tuesday has trimmed the weekly loss to just under 0.8%. Being believers in the rally the last couple of days, we’d like to see SPX finish with a loss less than last weeks if for nothing else than to avoid the “Stocks have worst week of the year” headlines over the weekend.
Markets will have plenty to digest by the time the opening bell rings. Earnings are due from bank heavyweights J.P. Morgan (JPM) and Wells Fargo (WFC), consumer price index (CPI) will be reported, and we’ll learn of China’s latest GDP reading. The focus on all of these data points will be heightened given the 2%+ rally over the last two trading days. Perceived weakness in any of these reports that may have not impacted the market as much at 1,357 will certainly carry more weight 30 points higher at 1,387.
We’d be remiss though if we didn’t point out that the markets have risen the last two days as yields in Spain’s bond market have fallen. We don’t believe that to be a coincidence. So make sure you check the 10 year yield before the bell because if it finds itself heading back towards 6% we could see the VIX bounce back from its 14% drubbing on Thursday – we pointed out the clear inverse correlation between the VIX and SPX in this video.
Lastly, if this whipsaw bounce has caught you off guard it shouldn’t have. After all, we told you this could easily happen:
“Remember, just as rising volatility has brought us down more than 350 points in a week, it could easily bring us back up just as quickly.”
-@ the bell 4/10/12: Are you being stared at?
Keep in mind now though that since the VIX has fallen dramatically, the upside is limited in terms in scope. What we mean is that if the uptrend does indeed continue, it will likely do so in the form of smaller, more smoother moves higher. Don’t be caught off guard by these moves, read our daily commentaries instead
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- SH @ the bell 1/9/2012: Things are getting tight