Don't let the flat final numbers fool you: there was lots of market drama today.
This morning, in discussions with my colleague Dylan Ratigan, I stuck my neck out and said that the market should trade up modestly today for several reasons: 1) ISM was better than expected, 2) first day of the third quarter is historically an up day, and 3) the market is as oversold and bearish as I have seen it in many years.
But there was little interest in buying through a good part of the day--indeed market leaders like tech and energy stocks were being sold through the early afternoon. More hand-wringing.
Stocks began coming off their lows just after 1 pm ET, but there was still no catalyst to move things notably higher.
Then, just before 2 pm ET, GMannounced auto sales for Junewere just down a little over 8 percent, much better than the decline of nearly 20 percent expected. GM rallied, but so did all the other stocks in the auto sector (even Ford, which didn't report better than expected numbers), and then the short-covering began as the market turned around.
How oversold is the market? Take a look at the S&P Oscillator. An oscillator is just a fancy word for a program that looks at how oversold or overbought the market is. Without going into details, it triggers a Sell signal when it is +4 or above, and a Buy signal when it is -4 or below. An extreme oversold is -8 or below.
Last night it was -9.4, the most oversold reading since July 2002. The market, you'll recall, bottomed in October 2002. THAT is what I mean when I say the market is oversold.
As any market wag will tell you, the market can remain oversold for a long time. So can bearishness, although the levels I am seeing now are rather extreme.
Bottom line: this was a battle between bulls and bears, and the market revealed itself to be very oversold, but not strong enough to rally significantly. It’s a step in the right direction.
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