Stocks bounce. Time for a rally?

Quick Recap

After the buffetting of the last three months stock traders decided to take markets in Europe and the US higher overnight with solid gains across the board. That’s still left all the major indexes with some serious losses for the quarter however.

The ASX lost around 8% last quarter after losing 7% in the June quarter. It’s also bounced off the long term trendline that stretches back to the GFC low. So far at least.

So as I said yesterday in my ‘Editorial’

I’m just not going to get uber-bearish. As I keep saying that’s not to say that is not my rhetorical bent. Indeed, my super is 100% cash waiting for substantially lower prices before I get back into a more risk seeking asset allocation.

The reason is that the types of pessimistic crescendo’s we saw yesterday are part and parcel of this increased volatility we are seeing in markets at the moment. markets are surely becoming unstable and they are setting up a huge probability of a big crash or protracted fall in prices. But everyone else seems uber-bearish now. That often reflects their position as much as anything else and as Euro bears saw at 1.05 the chances of a rebound grow when that’s the position.

Just something to remmber…markets go up and they go down. So far the big stock markets look like they have put in place the highs. But unless or until the August lows are taken out any shorter term bearishness needs to be somewhat tempered.

So it’s no surprise that we saw gains last night in the big indices in Europe and some solid gains in commodities. Sentiment swings just as wildly as prices and coppers 4% rally back to $2.34 a pound is just another example of how volatile volatility is at the moment. The Aussie looks like it might have run out of sellers down in the low 69 cent region for the moment, gold bulls have given up again, even the CAD looks like it might have made a short term top.

But of course the next two days are chock-a-block full of data. PMI’s today in Australia, China and the rest of the world, retail sales in Oz tomorrow and of course non-farms in the US.

It’s going to be huge.

The overnight scoreboard (8.50am AEST):

• Dow Jones Industrials +1.47% to 16,284
• Nasdaq Composite +2.28% to 4,620
• S&P 500 +1.91% to 1,920
• London (FTSE 100) +2.58% to 6,061
• Frankfurt (DAX) +2.22% to 9,660
• Tokyo (Nikkei) +2.7% to 17,388
• Shanghai (composite) +0.5% to 3,053
• Hong Kong (Hang Seng) +1.41% to 20,846
• ASX Futures overnight (SPI December) -1 to 5,002
• AUDUSD: 0.6997
• EURUSD: 1.1170
• USDJPY: 119.91
• GBPUSD: 1.5123
• USDCAD: 1.3317
• Nymex Crude (front contract): $45.26
• Copper (US front contract): $2.34
• Gold: $1,114
• Dalian Iron Ore (January): 366(denominated in CNY)
• US 10 year bond rate: 2.04%
• Australian 10 year bond rate: 2..61%

On the day – Can Australian consumer confidence hold is ‘Turnbull bounce’?

On the data front today it is a huge day. We get AiGroup manufacturing PMI in Australia this morning but all eyes will be on the global releases. China, Japan and Korea are the big ones in our timezone and then we see releases all around the globe tonight. Also out today in Japan is the Tankan report, while in the US we get the grand daddy of PMI’s with the release of the ISM. We also get jobless claims, vehicle sales and a speech by San Fran Fed president Williams.

One thing to note, even though data is out today, China begins its National Day holiday week today (markets are closed through next Thursday, as is Hong Kong today).

CHART OF THE DAY: S&P 500 – The August low in a long term context

The S&P 4=500 is the global bellwether market. When it falls, or rallies, all other markets essentially take its lead. Of course, that is in varying degrees but the S&P is still the single most important market for global sentiment out there – even if the ructions can sometimes start in Asia.

So I offer this chart as an explanation as to why I am both bearish (my JimmyR indicator turned down) but not Uber bearish, the August low held above the 2014 low.

If that level breaks, which I believe it will eventually but have no idea when, then teh real bear market will begin. Until that time we are in a topping pattern.