Stocks rally after violent gyration

Market Review

This week has exceeded all expectations in terms of both market news and market movement, and yesterday was no different. As the sell off that has been in place since the last all time high in the S&P was looking to make an extension, Federal Reserve non-voting member James Bullard was speaking on Bloomberg TV stating that the central bank should consider additional asset purchases. Initially there was a small bid tone in US10Y as could be expected, although the move was halted as the St. Louis Chairman followed up with a favourable view on US fundamentals as well as comments on data dependent asset purchases; which at this point in time have been very favourable. We can mention initial jobless claims who’s average is down at a 14 year low, with a lower number not seen in the US since April 2000. The strategy in the S&P yesterday was short in the light of the recent trend, entry was obtained and hit target just before the bid on the back Bullard. EURUSD and US10Y were both obtained and stopped. 

Today's Fundamental View

As we have seen some impressive movement this week it can be difficult to maintain focus on what normal market movement is and fit trade expectations to your view. A 50 point daily move in the S&P is abnormal, and is unlikely to become the new norm. What we should take from the last few days of movement, and particularly yesterday's is how sensitive assets are to any changes in monetary policy; whether speakers are voters or non-voters seems to be irrelevant as we can see from the continued reaction yesterday and even into today’s session. Nothing has changed since we hit the low yesterday, with the exception of dovish comments entering the conversation. We argued in an earlier report that the market is overreacting by selling off sharply as the data in the US has been performing overall well, and the earnings season is doing well, and this sharp rebound is perhaps evidence of this being true. Google’s results have been released and is so far perhaps the most notable company to underperform, as the per-click advertisement income was less than analysts' expectations. We continue to look at this in a positive light; a company that defies mathematical logic and uses less quantifiable variables to ensure consumer satisfaction without any regards for what financial analysts recommends or expect. Data this afternoon includes the forward-looking building permits, a number which has been relatively stable around the 1M handle; we remain carefully bullish on this data set. The Consumer Sentiment number from the University of Michigan is expected at 84.3, and with Christmas just around the corner after an uplifting summer and decent jobs numbers we see nothing but upside for this reading. Although we are long term bulls we remain aware of the downward trend in the S&P and will sell this asset, and the straetgy will be in line with yesterday’s directional views on a trend following basis. 

Alternative View

Monetary policy will be dictated by arbitrary speakers which can alter the direction of the market