Firm's morning comment

During the very early stages of this advance off the then lows we would watch how the markets reacted to negative news flow. We did this to gauge if all the bad news was already discounted into prices. And similar to many other lows in the past where bad news was widespread this tape also had its' share of scary headline news. And like other lows in the past this market also ignored the bad news every time it came out and managed to work higher. Since markets are a discounting mechanism they try to look ahead. Hence a few months back the markets were likely anticipating the not so bad economic data that we are now seeing. Thus Friday's bullish non-farm payroll actually led to a sell-off after the initial euphoria faded. This selling on good news was most likely because it was already anticipated. Now one day of selling into a rally on bullish news does not make a raging sell signal, however it should at very least make one start watching more closely to see if bullish news in the coming days and weeks leads to more of the same activity (ie. selling the good news) that we saw on Friday.At some point we are likely to get a testing sequence and selling the good news could be an early indication signal to take some chips off the table after a near 50% run off the lows.


posted by Peter Greene