STTG Market Recap: Heading For A Market Rally?

 | Aug 22, 2013 04:09PM ET

After such a terrible close yesterday many thought today would be a washout day to create a near term bottom, perhaps setting up an oversold bounce that lasts more than a day. Instead the market did what it usually does, doing what most don't expect and gapped up at the open and rallied most of the day. Some positive purchasing managers data out of Europe and China were the main sources of optimism. It was a strange day in that the NASDAQ suffered an outage for about 3 hours. During the halt, the Nasdaq remained frozen at 3631.17, up 0.9%. In the end the S&P 500 gained 0.86% and the NASDAQ 1.08%. This was interesting as it happened even as the yield on 10 year Treasuries broke over 2.9%; this yield spike has been the major source of concern of late.

HSBC's preliminary reading of Chinese PMI for August crossed the key 50-level for the first time in four months thanks to a rebound in new orders, pointing to potential stabilization. The euro zone also beat expectations, with the composite number rising to 51.7 in August from 50.5 for July.

We had the S&P 500 rise back to the 50 day moving average to close for highs of the week; the NASDAQ meanwhile broke slightly over the blue dotted line we had marked as resistance the past week or so. Now the question is do we get another V shaped rally immediately after a 2.5-3.5% correction as has been the pattern throughout 2013, save one episode? Or do we have another repeat of that same episode in late May through late June? This is one of those places where it is not an easy spot - a lot of mixed signals out there. Every time (except one) in 2013 when you think the market is going to go through a serious correction it just goes vertically straight up so you have to account for that when quantitative easing hovers over the market. There has been quite a bit of damage done in the indexes and seeing them all back over their 20 day moving averages at minimum would be more comforting for bulls.