Certifying Market Stability?
The early days of August visited the downside in an uncomfortably volatile fashion. Money managers were justified to ask, "Is this 2008 all over again?" A 6.5% rebound over the past week has calmed those "2008 Part 2" fears. Fundamentally supportive of the rebound have been an accommodative FOMC statement, continued robust corporate earnings, Japan's rebound, and U.S. industrial production. Headwinds remain in the form of undercapitalized European banks and a broken U.S. political system.
I think it is important to follow the technical structure of the market for the remainder of the month. On Wednesday, August 17, the market achieved a near-term peak of 1208.47 before profit-taking reversed the recovery momentum. To protect the validity of the advance from the August 9 low of 1101.54 to the August 17 high of 1208.47, technicians will demand that any correction finds support between 1141.64 and 1155.01 on a closing basis.
Aside from the August 17 high, I expect the upside is limited until we move past the early September releases of ISM Manufacturing and the U.S. jobs report. Protecting the downside is now my near-term concern, just as it was the first week of August.
S&P 500 Index, 8/1/11 to 8/17/11