Confirming the obvious

Monday’s financial news was highlighted by Moody’s four notch downgrade of Greek government bonds to junk status, pretty much giving the rating agency’s imprimatur to an event that had already taken place – they were beaten to the punch by S&P nearly two months ago. After the announcement, US stocks, which had been following through modestly on last week’s rally, and briefly punched through the 200 day SMA, sold off into the close.

Looking beyond the closing tick, however, gives a clearer picture. Advancing issues outnumbered decliners, and up volume outweighed down, with new 52 week highs far exceeding new lows. Overall volume on the day was on the light side, a summer type of trading pattern.

In keeping with the old maxim “sell the rumor and buy the news” the deeply oversold euro gained and the overbought Dollar pulled back on the day. Commodities pretty much just mailed it in, nothing much happening over there. BP shares took another ugly beating as the gulf fiasco remained in the news focus.

The recovery rally we called last week looks set to continue, but it certainly doesn’t look like a raging at bull at this point.  As noted, volume is light, and financials aren’t looking particularly healthy – it’s always difficult to launch a bull market without their participation. We will probably take another shot at that 200 day on the SPX; whether it can break through and hold it will tell us a lot about the summer’s prospects. Keep that close watch on your positions.

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