The Bounce – Trampoline Style

Well, the bounce we called for over the weekend came into the stock market with a vengeance – the SPX gapped up at the open and finished with a flourish of price and volume, gaining an impressive 4.4% on the day. On the NYSE, 94% of listed shares advanced, while 97% of volume was in the advancing issues. One suspects a vicious short squeeze was the order of the day. Even so, the index remains below its 50 day SMA and closed shy of Thursday’s open, with today’s volume falling short, not only of the two prior sessions, but the distribution day of the 18th as well.

Turning to the major actors in last week’s drama, the action was less impressive. The Euro opened higher but ended down near Friday’s close – not exactly a ringing endorsement of the monumental EU rescue package. Foreign equity markets, oil and most other commodities staged a very modest recovery. On the safe haven side, the US Dollar and the long bond both opened lower but closed with gains on the day, while gold simply took the day off.

Let’s see where we go from here. The markets are spooked, and everyone is still trying to think through the implications of Sunday’s bombshells. Continued defensive positioning looks like a winning strategy for the near term. Watch the Treasury Bond market for signs of skittishness over the Fed’s involvement in the EU rescue. The Dollar still looks like a winner here – with the swap lines open, there will be extra demand for the greenback.

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