Tuesday, September 27, 2011

Monday Market

In the last few months, we've had numerous Greece-is-saved rallies, but now that the crisis has deepened, the stage is set for powerful Europe-is-saved rallies.

There are plenty of skeptics who question whether a solution is really forthcoming, but we've seen this combination of negativity and high-frequency trading before, and it can create amazing momentum. The lopsided nature of the moves, once they start running, makes it clear that the machines kicked into gear and goosed the momentum once it caught hold.

Breadth was about 2:1 positive but the underperformance of the Nasdaq and small-caps versus the senior indices was the most striking aspect of the action. The biggest and sharpest upside moves almost always occur within downtrends. Market players are not ready for them, so when we start to run, many are inclined to rush in out of fear that the low is in and they will be left in the dust if they aren't immediately invested. That usually doesn't turn out to be the case, but a sudden reversal in a downtrending market can cause a lot of anxiety for underinvested money managers, especially as we are near the end of the quarter.

So, does today's bounce mean the worst is over? It's possible, but the big technical picture hasn't changed - according to those who believe.