GM Weighs, Then A Bounce

Despite media reports that the indices finished the trading session higher because “stocks are cheap”, two days of heavy selling had allowed the market to price in a pretty ugly jobs report and left us oversold. As a result, it wasn’t too surprising to see the market bounce back today, even though the employment data was downright miserable and GM’s earnings report let Wall Street know that they barely have enough cash to make it through the end of the year.

In the meantime, we had to contend with a little game of expectations into and after the first press conference from President-elect Obama in which he discussed the economy. Hope that he might deliver some sort of catalyst drove some buying ahead of the event while some entirely understandable non-committal remarks made that buying interest dry up. Still, even though we entered the final hour near intraday lows, a late spurt of buying helped the market go out at highs.

Once again, we got some big swings between the bells, and that gave day-traders some opportunities to knock out trades. However, the interesting thing is that the indices now have the chance to put in a higher low. Like we said this morning, though, all we’ve seen so far since the terrible action in October is a possible double bottom and an oversold bounce into resistance.

The bulls have some arguments. Valuations (if accurate) are low and we’re heading into a seasonally strong period for the market. And, after a long hard bear market and the capitulatory action last month, it just feels like we are due for some action to the upside.

However, up to this point, we’ve only has the opportunity to learn the same lesson the market has been teaching us all year: do not chase strength. There has been some technical improvement, but there hasn’t been any real progress. If we are in store for a counter-trend move, then we’ll need to see some better proof before we start putting capital to work. The problem is that we still lack leadership and individual charts are just plain terrible. Until that changes, we’ll just have to stay cautious and play defense.