Big up day after down opening

spy0123.pngThe stock indexes had an extremely wide range day. The huge Apple sell-off after the close, not on earnings but on outlook, as well as remarks by ECB president saying they won’t be cutting rates (I bet they change their mind shortly) put pressure on the opening of the stock indexes, with the NASDAQ being the hardest hit. The sectors that have been the weakest, such as financial, retail, and housing started rebounding early in the session, with the previous highflying bubbles, namely tech and some commodity related bubbles, were hit hard. Later in the session the S&P traded up for the day with momentum building until even the Nasdaq started to join the party.
Technically the trend is still down. I put the short term standard error bands on the chart this time. I clearly defines the downtrend. The was a momentum divergence in the double stochastic, as I pointed out yesterday. There were few indicators indicating a divergence, and the advance/decline line still looks bad. Also the VIX, as pointed out yesterday with some skeptism, indicated a possible bottom yesterday. By late in the day that possibility had more credibility, but early in the day it looked like another fakeout from the VIX, which has lost much of its short-term predictive value as it has become too popular. It sure worked this time. Some analysts suggest the low today was the retest of the bottom from yesterday. On some intra-day charts there may be some validity to this, at least for a very short-term bounce. I think a proper re-test, or double bottom, should occur on the daily charts with a little more distance between them, rather than just being a two bar reversal. This may turn into a “V” shaped bottom, but as usual, backing and filling with trends turning up, and lots of retests are preferable for a sustained move, at least in my humble opinion.
What might be indicated, although there is far too little data to make a conclusion at this point, is that there is going to be a massive rotation out of the previous momentum leaders (aapl,rimm,goog,bidu,amzn, etc) into another group that will benefit more directly from the new environment of going back to near zero interest rates. One would think commodity related stocks will benefit and keep that bubble growing, but if Europe is only blowing hot air now, saying they will hold firm on rates, the dollar could actually go up (yes, that wasn’t a typo) in the face of falling rates and common wisdom. It’s just a possibility.

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