More Weak Economic Data but Stocks Stage Reversal

The day began at 8:30 am with weak reading out of durable goods orders sending futures lower.  Economic data would get even worse with new home sales plummeting much lower than the flat reading that was expected.  At the open, volume and price were both lower across the board but with the new home sales data stocks dove to their lows of the day.  Once again, like Tuesday support rushed back into the market pushing stocks higher.  This time buyers were able to keep the major market indexes in the green finishing just off the highs of the day.  Volume put a damper on the day as it came in lower than Tuesday’s action suggesting institutions weren’t eager to support the move.  More economic data is on the way including GDP revisions Friday may keep institutions on the sidelines for the time being.

Today’s reversal was nice to see after four straight down days, but it lacked the necessary power to really bring back the excitement to this market.  Volume simply wasn’t large enough to suggest institutions were willing to step up.  Not all is lost for a possible rally as today did market the first day of an attempted rally and the NASDAQ staged an outside reversal day.  Outside reversals are powerful change in trend days.  It would have been much more convincing if volume had simply overtaken Tuesday’s levels.  Until we see accumulation this market will continue to search for a new sustainable trend.

If this market does decide to push higher volume will be key as well as leading stocks.  The more volume to the upside the better chance we have to catching monster moves out of stocks.  Those will come from our market leaders and those leaders continue to act well.  But, until this market cooperates it is best to stay on the sidelines.  Just be ready to pounce.

It seems calling a bond market bubble is everyone’s past time.  At the beginning of 2009 many were calling for a top in bonds and yet we continue to see lower yields and higher prices.  Many tend to forget the best performing asset class during Japan’s economic death spiral has been its own debt.  Sure, at some point we’ll see bond prices collapse much like the stock market did in 2000 and 2008, but the when may be well off in the future.  The lesson here is trying to pick a “top” just like picking a “bottom” is an endeavor most find fruitless.  Could today have been the top?  Perhaps, but continuing to guess a top has yet to be proven a winning strategy.

Jobless claims are set to hit the market tomorrow at 830am EST and the GDP revisions Friday.  The market is certainly been digesting substantially weak economic data well.  Will it continue, stay tuned!