Stocks started out this week much like they started out last week, moving higher. Today’s move is very suspect though because there are a few ingredients of a healthy bounce that were missing:
1.) sharp move lower in the VIX
2.) sharp move higher in oil
Today’s rally absent of these two occurrences leaves us with an overall bearish bias on this bounce.
We said this morning we’d favor shorting a bounce that wasn’t accompanied by a move higher in oil and we still stand by that. In addition to oil lagging the rally, we see another reason to be bearish: Spain’s 10 year yields. The yields have remained stubbornly higher after breaking above the psychological 6% level. At 1,291-1,300 these yields didn’t garner the same bearish attention they did with SPX at 1,370 (where SPX when the yield broke above 6%).
Following a 3% technical bounce from 1,291 though, the market is going to start looking for fundamental reasons to reverse lower since the technical picture still looks short term bearish. That’s not to say there weren’t some positive technical events today, mainly the action in CMG. CMG ripped higher and had its best day of the year today, climbing to its highest closing level since 5/3. This is definitely a good sign because CMG has been a clear leader in the consumer discretionary sector and it moving higher will bode well for XLY (which by the way outperformed the market today with a 1.3% gain).
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- SH @ the close 11/29/2011: Mixed session for stocks as technology/banks lags
- SH @ the close 4/11/12: Markets bounce back but VIX remains elevated
- Stockhaven @ the close 8/11/2011: And the answer is…. BOUNCE
- SH @ the close 10/10/2011: Market surges higher on bullish technicals
- SH @ the close 11/7/2011: Markets shrug off early weakness, close higher