Anaylsis:
On August 30 the Analysis predicted “the market to recoup all today’s losses” the following day, which was yesterday. The market did not recoup all the losses yesterday, but did so convincingly today. On August 31 the Analysis predicted that “the PMI will likely surprise on the upside, which will prod the market higher,” and today the PMI did surprise on the upside and propelled the market higher after 10 a.m.
The market opened higher, ostensibly driven by the marginally higher manufacturing PMI reading out of China overnight, but the real reason is what the Analysis remarked yesterday, “the Bears should feel tired, as the market stubbornly refused to follow any prodding to plunge below 1,040.” Once the manufacturing PMI was released at 10 a.m., the market released all the pent-up force against the Bears. Today’s rally clearly is a short-covering rally, because the market completely ignored any negative news, as the worse-than-forecast Construction Spending did no damage to the Bulls.
Looking ahead to tomorrow, the Jobless Claims will not be a surprise in either direction. Chairman Bernanke will use a speech opportunity to dispel any market doubt on the FOMC’s willingness to act in unity if another round of QE is needed, but he will also signal that no such action is imminent. His speech will drive the market to open higher until the Pending Home Sales Index one hour later reminds the Bulls of the economic reality in contrast to today’s euphoria. The market will test the resistance in the 1,080-1,084 area but should close lower when Friday’s judgment-day mentality sets in.
Strategy:
Long stopped out at 1,075; sold at 1,080
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