Buying the bad housing news worked well today, and we even managed to close near the highs for a change. It took a while for the buyers to gain confidence but, at mid-day, they finally found their footing and inched steadily higher all afternoon
Of course volume was lackluster once again, but breadth shifted to a healthy 3,400 gainers to 2,200 losers by the close, and we had leadership from retailers and homebuilders. Oil was the weak spot, but financials turned up nicely and that helped as well.
One of the main factors behind the bounce was a turn in bonds. They gapped up again to start the day as the rush to safety continued (especially after the poor housing news), but they weakened this afternoon, and that helped to take the edge off of what looked like panic buying. The market needs this flight to bonds to cool off and more money to flow into equities if we are going to see much upside in the near term.
Overall, it was a decent buy-the-bad-news bounce, but we were oversold so it isn't particularly surprising. Of course, the moment we have one slightly positive day within a downtrend, there will be the over-anxious bulls that will proclaim that it is clear sailing to the upside from here. While that may be possible, there was nothing exceptional about the action today and there is no reason to believe that the selling won't pick up again.
We have weekly unemployment claims tomorrow and the revised second-quarter GDP figure on Friday. The GDP numbers have been coming down sharply over the last few weeks but, given how poor these housing numbers have been, it may not be low enough yet. A GDP number near 1% isn't going to do much to attract new buyers.
I wouldn't be surprised to see a little more bounce after we digest the weekly claims tomorrow, but don't lose sight of the possible fact that we may be still solidly mired in a downtrend.