I expect the recent volatility is on readers’ minds, so let’s get right to TradeMaster‘s Jason Cimpl and his outlook:
The bulls did not capitalize on Friday’s bullish close yesterday. Stocks were up strongly in the morning with most indices up more than half a percent. Those gains held into the afternoon and it seemed as though we were going to see a nice pop into the close. Then around three, the market started to turn red and indices sold off hard in the last hour of the day. But it is not over for the bulls.
Despite the weak afternoon, the SPX managed to close above 1065 support. Resistance was formidable at 1071, which is the price we will be watching for a break out today in a short squeeze.
Short interest picked up substantially. We closed down most of our shorts already (including one with a sweet 15% profit . Basically, the market is oversold and any pop up will be fast. We held onto most of our longs anticipating a move higher, possibly back up to 1120, but we will be selling into any rally.
It’s important to remember that the vast majority of stock trading volume comes from institutional investors like mutual funds, hedge funds, and even sovereign investment funds.
As Jason notes, stocks rolled over yesterday afternoon. That’s consistent with institutional trading, which tends to take place during the first and last hour of the trading day.
It’s also important to remember that institutional selling isn’t necessarily an indication of economic or earnings data. Part of the reason stock prices hit such lows last March was that banks and other investors had to raise cash at all costs. And that can mean selling assets, regardless of one’s outlook.
A similar situation may be happening right now. Greece (especially) and other European countries have debt problems. No doubt some of the selling activity we’ve seen lately is related to this. Investors are hopeful that a solution for Greece’s debt problems is on the horizon. That’s helping today’s upside bias. That hope is also boosting the euro against the U.S. dollar which is good for stocks and commodities.
Also, don’t dismiss the government’s new-found focus on employment. We’ve already started to see what may be a trend change for employment. Jobs are the missing link to the economic recovery. Good news on this front will certainly help stocks move higher.
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