Santoli’s Thursday market notes: Investors await jobs data. Stocks must prove this isn’t just a reflex bounce

Published Thu, Oct 7 20211:10 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. A three-day run higher out of the "hole," reflecting a blend of oversold conditions and some relief after a couple of key pressure points ease ⁠— energy/supply chain stress and debt-limit overhang. As noted all week, we're pretty far along in an ongoing market reset that priced in a third-quarter slowdown, reflected a flattening of earnings-forecast growth and soured investor sentiment, all in a pretty constructive way. Another drop in retail-investor optimism captured in today's AAII survey, which got down near what historically has been a "contrarian buy" zone for stocks. Economic-surprise trends have improved (ISM services, claims, ADP, etc.) since the end of the third quarter. Have we reached the saturation point on supply-chain friction and focus? The earnings calls might say for sure if the worst is discounted along this front, but hints are starting to show up to that effect. Things tend not to repeat so neatly, but in 2020 the S & P peaked on Sept. 2, fell hard into late September, had a failed bounce and then sank to flip-flop around its 100-day average before rebounding in a more convincing way with new cyclical leadership. This year, we peaked on Sept. 2, fell for a few weeks, had a failed bounce and have been oscillating around the 100-day average as cyclical sectors percolate. Market still needs to prove this is more than a reflex bounce, maybe +2% to 3% from last night's close would help make that case. Still facing central banks in taper mode and retail investors trying to digest massive increases in equity exposure built up from the market's ramp from March 2020 and record stock inflows in the first eight months of 2021. Here's the short-term tactical look. Playing with the short-term downtrend and still hanging below where the index gapped down a week ago Monday. Some fast-money traders will see a logical place to put on more shorts around here. Market corrections/comebacks are a process, not a moment. Maybe this is the kind of neutral spot the market will hold heading into the payrolls report tomorrow? Interesting spot here for the banks, rising the lift in yields and firming cyclical tone back toward the YTD highs, though JPM and BAC look best among the big ones with more decisive breakouts. Credit markets have remained firm, no heavy macro stress there. Argues that this has mostly been an equity shakeout rather than material rise in economic-recovery risk. Domestic and U.S. reopening dynamics are intact for now. Market breadth quite strong, more than 80% upside volume. VIX receding, starting to make a decent spike on the chart that can mean the fever is breaking, but at/above 20 means no "all clear" message yet. Could be retaining some juice due to jobs number directly ahead.

A trader works on the floor of the NYSE American Options market at the New York Stock Exchange, April 16, 2018.

Brendan McDermid | Reuters

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

A three-day run higher out of the "hole," reflecting a blend of oversold conditions and some relief after a couple of key pressure points ease ⁠— energy/supply chain stress and debt-limit overhang.