Jan 23

The Market Today 1/22/16: Bounce


This has been the worst January on record! We finally saw buyers come in in the later half of this week. As I have mentioned before, the 1,820 level was key support. I sent a video email to clients letting them know this was the key level to the downside. On Wednesday, it broke this level on an intra-day basis, going as low as 1,812. Once it hit this level, we saw the bounce I was looking(hoping) for! It moved from 1,812 to 1,872 until the last half hour of trading, where it gave some of it back to close in the 1,857 level. Personally, after a miserable Friday from the week before, and entering a three day weekend, I thought the selling to breach the 1,820 would have happened on Tuesday. Nonetheless, it happened on Wednesday. The following day saw some consolidation of the prior afternoon, and went sideways, until some buying came late in the day. Today, we finally saw buyers come in force, and close up nearly 40 points at 1,906. There is no doubt, that sentiment is still extremely low. First, what is the cause behind the sell off? What it really comes down to, is the global economy is slowing. The IMF just lowered their global GDP down for the third time this past week. That is the main cause of the selling. The next concern, is it just slowing growth, or is the global economy in deflation? Still too early to tell on this one, but by the fact that prices on pretty much everything are dropping(ie stocks, commodities), that this may be the case. This is not what we want. The good thing here, is for the first time in month’s, we saw a rebound in the price of oil. Oil had a strong move to the upside today, I do expect this to continue at least in the short term. This may help brings stocks up along with it.

Bounce: Stocks

We finally saw the bounce in stocks starting on Wednesday, with strong follow through today! Stocks bounced off of the key 1,820 support, and closed at 1,906. By looking at the chart, I put two yellow lines at key levels I would like to see stocks break above, in order for the market to resume the uptrend. These levels are at 1,950, and 1,990. I believe the 1,950 is very important. If we could close above this level this upcoming week, this would be a strong positive. Even more, getting a close above the 1,990 would be much better. I do not believe we will see the 1,990 level this week. The market always surprises, so it is in the realm of possibility. Stocks have been very correlated to oil in the last few weeks. Whenever there was an uptick in oil, there was an uptick in stocks. Oil closed above the $32.10 resistance, and may move up to the $35-37 area before consolidating. This move would be very reassuring to the equity markets, and finally bring calm to the storm. Barring any news over the weekend, I do expect buying to continue on Monday morning. What would give me greater confidence in a move to 1,950, stocks to open slightly weaker on Monday morning, and then see strong buying coming in, and lift the averages to positive territory to end the day.

Bounce: Bonds

Once again, the bond market is doing the complete opposite of what the majority is thinking it would do. During the market turmoil, yields moved below the crucial 2% level, and reached as lowof 1.93%. Once it hit that low on Wednesday, we finally saw the bounce in yields, and it closed today at 2.04%! I believe the close above the 2% level was important. To give me greater confidence, I would like to see the key yield on the 10 year to get above the 2.17% level. This would tell me the bond market believes the worst is behind us.  Keep a close eye on yields!

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s navigate through market turmoil, and keeping them aware of each bounce level, and to act accordingly!

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