Markets digest prospect of more financial bailouts

The 10:00 a.m. ET data was not terribly reassuring. According to the U.S. Commerce Department, new orders for U.S. manufactured goods were down 0.2%, falling short of expectations that they would remain unchanged. July's 2.4% increase was also revised lower to 2.1%. Although disappointing, market participants were happy to see that the numbers did not miss by a larger amount and it was not enough to push an already exhausted market even lower. Instead, the market took this as its cue to finally offer a reprieve.

Tech stocks, and particularly semiconductors, were amongst the strongest players Tuesday morning. By mid-day the Nasdaq was in positive territory, but sharp selling pressure hit in Apple (AAPL) in the early afternoon following the unveiling of its latest iPhone. Apple had also struck technical resistance at noon at its 5 minute 200 period moving average. The 5 minute sell trigger came at approximately 12:50 ET.

S&P 500 (Figure 2)

Technicals or News?

Despite strong afternoon selling in Apple (AAPL), the afternoon downside in the broad market was more gradual than the selloff into 10:00 a.m. ET and substantially slower than Monday's decline. This continued shift in momentum with each wave of downside slower than the last is a process that often results in a strong reversal... at least in the short term. Lighter volume on the selloff compared to earlier trade also showed a lack of conviction for further downside intraday. The channel break that triggered the upside reversal on Tuesday took place out of the 15:00 ET correction period.

In addition to strong technical reasons behind an afternoon rally, news headlines also may have played a role, notably in the financials, which led a powerful late-day recovery that swung the market higher by approximately 4% off morning lows.

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