The US CPI figures released on Thursday ignited some big volatility in equities.
The S&P 500 initially sold off nearly 100 points and then turned and rallied nearly 200 points from the low! That’s a 5% range on the day.
Reversals often begin in such a manner, so I will be keenly watching the next few days of trading to see whether there is follow-through buying that could confirm the beginning of a bear market rally.
The strange thing about the US rally on Thursday is that their bonds didn’t rally with stocks. The US 10-year bond yield is still knocking on the door of 4%.
UK bonds did stage an impressive rally, with the yield on their 30-year bond dropping around 25bps. That may have provided some relief for markets since UK bonds have been under extreme selling pressure recently.
But apart from that, there wasn’t any news I could see that would be a valid catalyst for such a sharp reversal in stocks on the day.
If there isn’t any follow-through buying, and the S&P 500 turns back down rapidly to head below the low created on Thursday of 3,491 — watch out. That’s when we could see things unravel rapidly.
But until then, I am going to switch back to a neutral bias and potentially buy a few short-term positions, provided we get some extra confirmation that the reversal was the start of a bear market rally.
Check out the ‘Closing Bell’ video above, where I show you what we need to see before you can become bullish.
Regards,
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Murray Dawes,
Editor, Money Weekend
