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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, GM [GM
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]announced auto sales for June were 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,[F
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] 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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