Turnaround Tuesday certainly made some heads turn. Despite a persistent oversold state, equities trailed off during the length of the morning. Bounces were laborious and swiftly sold. Stocks even failed to muster much strength during the brief time oil was down early in the day. This is bear market behavior. All told, though, the action felt a lot worse than the final numbers suggest. The SPX ended the day down a mere one percent and closed only five points below where it ended the first five minutes of trading.
By early afternoon, stocks eased into consolidative mode (which, naturally, was not apparent until later in the afternoon), and we are now looking at some important trading hours directly ahead. Here's the picture:
So if the bear case is unfolding, the immediate action for the SPX should roll roughly sideways, respect 1275, and break sharply lower in the next day or so. That, of course, is the neat and tidy scenario that would provide for an easy, risk-controlled entry into shorts. Knowing that the market gods are usually not so nice, I concede the fact that stocks could simply tumble from the open tomorrow. If we were to just rocket higher, I would be considerably more surprised, not to mention less wealthy since I already have a moderate short position.
The NDX is looking bearish as well.
Oil refused to accommodate bounce hunters by retreating to $110. Instead, it exploded higher and carried commodities like precious metals, sugar, energies, and industrial metals with it. I suspect we're seeing the start of the first counter-trend rally in commodities. This scenario fits with the aforementioned prospects for continued weakness in equities. At some point, I suspect just about everything will decline in price together as the global recession trumps all else. Central banks will then fight the recession with everything they've got, setting up an even grander stage in the commodity bull market.
Well, the next couple of days will reveal a lot about this read on market action. Should be interesting to watch how things unfold.