Courtesy of Blain.
Stocks surged Thursday after a combination of better than expected economic news and confirmation of leaks over recent weeks that the European Central Bank will offer a “conditional” unlimited bond buying program for shorter term sovereign European debt, combined to create a “risk on” environment. The S&P 500 gained 2% and the NASDAQ 2.2%.
Looking at the chart for the S&P 500 we see today was a pivotal day as a series of lower highs since August 21st was punctured (orange lines), leading to a break of those same highs. The S&P 500 had repeatedly tested the upper 1390s level the past two weeks and a substantial move of >;1% down or up would change the complexion of the technical picture – in this case it was up.
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Sentimentrader.com reported yesterday that the S&P 500 has formed one of the tightest month-long closing ranges in nearly 50 years. Only 8/5/93, 12/23/93, 8/28/95 and 1/10/07 can compare. For what it’s worth, the market broke to the upside each of those times, gaining 2% – 5% over the next month.
The NASDAQ has had a different path, creatin a series of bull flags of which it broke out of today.
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Small caps have actually been outperforming the past few weeks, which is a big change from most of 2012 – this is a positive indicator of “risk on”.
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There are still issues with what type of stocks are moving – the transports and industrials, normal pro-cyclical areas have seen a lot of selling since that mid August high. Of course they rallied today as almost everything did but they are certainly not the leadership sectors as they would normally be in a rising market.
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As for today’s economic data, the ADP employment report came in over 200,000 which will increase expectations for tomorrow’s official jobs report. Weekly jobless claims dropped, while ISM Non Manufacturing came in better at expected at 53.7. This contrasts to the Tuesday reading of the ISM Manufacturing report which was sub 50 – indicating contraction. Of course there is far more services than manufacturing happening in the U.S. economy. As for the ECB, everything revealed today was leaked to the press yesterday so it was a bit surprising the market reacted so well to news that was already available. Now markets will wait for Spain to officially request aid, at which time the ECB will get to work buying their short term debt. Could be dicey as negotiations are done both in the public and private sphere.
