Sellers were enjoying the day until comments from Speaker Boehner on the Fiscal Cliff negotiations. President Obama followed up just before noon time with similar remarks. The market was diving to new lows, but the comments spurred buying. We can argue it was High Frequency Trading and algorithm trading programs, but in the end price action was quite bullish. Volume ended higher across the board today showing buying had some giddy-up. There were some disappointing moves in some leading stocks, but many held their ground and added to their gains a definite positive for this market. Tomorrow we’ll get a read on GDP and should provide some fireworks for the morning trade.
GDP is set to come in at annualized rate of 2.8%. Last reading showed the economy grew at a 2% rate better than expected. We can’t reasonable predict what the number will be, but we do know the price action following the release will be what is important to us. At the moment we have yet to have the market follow-through confirming a new rally (despite what IBD called last Friday), but we have encouraging signals. Tomorrow may just be the day where economic news ignites buyers to confirm a new market rally heading into the month-end.
Sentiment was quite bearish two weeks ago and while last week we did see bears tail off it will be interesting to see how the current rally has change sentiment. The disconnect I see here really is the spread between bearishness and the VIX. VIX has been quite tame given the amount of bears in the market. Expected volatility in the front month has been quite low and with the reversal in the markets the fear index continues to head lower. This is something to pay attention to as it appears the VIX is heading into the single digits.
According to IBD the volume on the NASDAQ was lower on the session, but the NASDAQ Composite index appears to have volume slightly higher on the day. Over on the NYSE volume did tick higher. Many are complaining about the declining volume in the market and it being a very big negative for this market to rally. This complaint has been with us since 2009 and will likely continue. Price action rules above all else with volume coming in second and comparing volume to years ago in the context of a new rally fails. At some point it will matter, but we’ll have price to assist us making that determination.
Rally is on for now until we see a big price decline on extreme volume. Know your exits.
