Most market veterans will tell you when markets rise on bad news that's bullish. It's hard to question this experience but Tuesday's action put this wisdom to the test. The news was just dreadful. The Greek situation is by no means resolved which is the slender reed bulls ascribed as a reason to rally. Frankly, all this Euro Zone troubles will continue to bob to the surface as troubles get only temporarily papered over.
What news there was featured awful Consumer Confidence data (60 vs 67 expected) which made the previous Michigan Consumer Sentiment data seemed as bogus as suggested here last week. On top of this was the double-dip in the Case-Shiller Home price data and a large drop in the Chicago PMI from 67.6 to 56.6 vs expectations on 63.
The good news from all this is just a repetition of the previous theme: "bad news is good, and good news is better". This has dominated bullish thinking as they believe interest rates will remain low offering little competition for stocks. Naturally, another round of $7 billion in
Tuesday just threw gas on the fire.
Also still in is how stocks rise with a weak dollar and stronger commodities especially energy.
Naturally, it also ends May with gains which minimize losses for most of the major indexes and is just more window dressing for portfolio managers.
Volume was below average once again while breadth per the WSJ was positive.
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is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
McClellan Summation Index
is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Continue to Concluding Remarks
Was it just more window dressing Tuesday? It seems so given the horrible economic data. But, perhaps this is just what bulls like since it means low interest rates forever. These low rates haven't helped with employment or home prices. The only good it's done, and it's no small accomplishment, is drive up stock prices. This is one of the Fed's announced goals and it's been achieved. Supposedly in a few weeks all this artificial market support (QE2) will end. Then a good part of the safety net is removed.
Perhaps there will be another round of QE under the guise of a different name but who knows really? The rumor remains widespread the Fed will just sell bond puts to keep interest rates stable. We'll see.
June begins with more economic data. The primary focus should be on the ISM Manufacturing Index which should not be good. But perhaps bulls will ignore this as well and focus on something more to their liking.
Let's see what happens.
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