The stock market shook of marginal economic news with the SPX closing above 1% higher. After the late sell-off yesterday the futures were bid up pre-market. However the Jobs report resulted in a small sell-off.
The job losses were at or near consensus but any hope that the Easter week’s drop would continue faded. Unlike Apple and EBay, UPS reported lower than consensus and also guided down.
To add to the bearish case, home sales and prices fell marginally from February.
However stock market shook off the news with
the ES futures never breaching any major support levels, the low being the S1 level around 831. The stock market had a roller coaster ride, with several spurts and sell-offs, before a strong finish towards the close.
The last hour’s rally was led by the commercial real estate (IYR), housing (XHB) (which had been under pressure) and of course the financial (XLF) and banking (KBE). The near parabolic finish in IYR suggests that the last hour rally again, may have been driven by short covering.
With the details of the stress test methodology coming out tomorrow, there was ample reason for longs to close out their positions in the banking sectors before close today.
However, the late day rally shows that not only were the longs in no rush to sell ahead of the report, but a lot of trapped bears capitulated and covered before the close. Also note that the leaders like Apple did not participate in the late burst in a significant way.
I feel that one reason we are not seeing a major sell-off is the presence of over-eager bears who have lost their fear of the bulls thanks to the success of the past year.
The bears short rallies aggressively, hoping for a major drop, and when dips are bought, rush to cover. This short, squeeze, repeat cycle, is quite visible in the sectors with the most short interest and the weakest fundamentals (IYR).
Almost all pundits are calling for a pullback to the high 700s where they will buy the market. However the pullback is testing their patience.
Every day without the pullback is sucking more people in from the sidelines.
It is also tempting more bears who continue to get burnt by the wide swings.
The market continues to be treacherous with no clear direction. The XHB sold off initially after the poorer sales numbers, but recovered most
of the losses by the end of the day.
What would normally take a few days (a sell-off on poor news, followed by some dip buying the next few days) happens in the matter of a few hours.
Sit on Hands time continues, unless you can scalp.
Clearly this is not the time to lean strongly in any direction.