As I expected might be the case, the S&P500 got to 1,600 and didn’t stop there. The big gap up today though wasn’t the conventional way I thought a bounce might play out, but it qualifies nonetheless. While the near 3% off of the recent 1,560 low looks good on paper, it has a lot of cracks to it from my angle. My main concern? The under-performance from the Russell 2000, which is up a less impressive 2.5% off of its most recent low. That’s a red flag to me because from its 2012 close to its highest year to date close the Russell 2000 was up 17.7% on the year vs a 17% gain for the S&P500 using the same metric.
In addition, the Russell is an index of 2000 stocks where SPX is an index of 500 stocks, albeit ones with bigger market caps. To me though, the Russell is where you look in measuring risk appetite. Why? Because Russell 2000 companies have smaller market caps and are ‘less proven’ than their large cap counterparts found in SPX. Therefore, I interpret the SPX gain being bigger than the Russell’s as market participants not as willing to be aggressive in the market place. In order to get back to the year-to-date highs, aggression, not conservatism is needed.
The other problem I have with this rally is the intraday price action on SPY. The last 2 days has seen SPY rally 2% vs its Monday close. However, on an open to close basis, SPY rallied < 1/10th of 1% yesterday and < 3/10th of 1% today. To me that implies that most of the gains are coming from a rally in the overnight/premarket futures market and there isn’t actually much conviction once the opening bell sounds. Markets bottom on conviction and top on a lack of conviction. That is, people have to believe the bottom is in for the bottom to indeed be in, where as they have to not believe the top is in for the top to indeed be in.
Until I see strong intraday price action I have a bear suit on at these prices on up to 1,620. SPX came above 1,600 as I suspected it would in the event of a bounce but for the reasons I cite above I’m skeptical. Key resistance is $160.50-$161 and then $162 (which coincides with 1,620). The 1,600 level will again be in focus on the support side. Leaders such as GOOG & GS look vulnerable after their lack of participation the last 2 days. TSLA & AMZN are 2 stocks with solid bases in place where I believe you can trade vs their most recent lows and target new all time highs.
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