With the wild and crazy action the last couple of days you might think I was crazy if I told you the net movement from the close on Monday to the close on Wednesday was three points. How could that be possible when the range was 32 points or roughly 2 1/2% of the index? That’s what I call mean reversion! With that ‘stick save’ into the close on Wednesday (more on that in the chart below) We still have a market struggling to find its way. In fact, it’s at this point that it is in need of some bipolar medication.
In any case, the recent low, circa 1295 on the SPX may be a ‘good’ one unless the news complicates matters. It was there we saw a nice pullback and flush down last Friday and near retest Wednesday to confirm sellers were drying up. That was indeed the case and hence the strong rally into the close (with very high tick readings). I would not call an ‘all clear’ however until there is some confirmation.
How many bought that huge move on Monday only to get burned the following days? We didn’t see the confirmation on higher volume that is recognizable of institutions coming to the table. Heading into a holiday weekend we should see volatility collapse (normal into a long weekend) especially if some fear is alleviated prior. I suspect any unexpected news over the weekend will cause the tightness to come back.
Much of the rhetoric and solutions being talked about are causing nausea for markets. It’s no different than last year however, yet this time around the Euros are facing a grave decision. There really is NO other decision to make than to do whatever is necessary to keep Greece and others in the Euro. If that means sacrificing the currency by firing up the printing press then that is what is going to happen (which is one reason the currency is being hit hard – in anticipation).
The ‘backstop’ of the Fed and China are there but not as first responders. Merkel and Company will have to make the tough choices without the benefit. The uncertainty over what is going to happen has the market concerned. Nobody likes uncertainty, traders/investors will reach for protection proactively as we have seen over the past few weeks. When the right choice is made we may see some relief and a massive market rally ensue. It may not be until the Greek elections in mid June.
