The bottom test late last Thursday started the reversal or bounce off the key support at 1900 on the S&P 500 index. The big question is how high does it bounce? The gain of nearly 2% off the lows is now the 1938 level which for now is a testing point for the move off the low. Oversold conditions created the bounce, but it will need a catalyst to follow through on the upside. No war between Russia and Ukraine would be a news driven catalyst, or strong economic data the balance of the week would be a catalyst, or strong retail earnings data Wednesday would be a potential catalyst… equally the opposite of the those issues would act as a downside catalyst. If they are mixed it will create more volatility. Thus, we remain patient and let it all unfold one day at a time.
There are plenty of data points the balance of the week that can offer a turning point for the broad indexes as stated above. Retail sales on Wednesday tops my list to take the temperature of the consumer. After all, the consumer is the key driver of the US markets. Earnings from the sector have been being reported the last week, and while mixed, they have offered some bright spots. The consumer is lethargic in some sectors much like the economy. They need confidence to spend and the current worries are keeping them from shifting gears aggressively. XRT, SPDR S&P Retail ETF moved above $85 resistance on Monday and that could reverse the short term downtrend in play and is worthy of our attention.
Russell Small Cap index took the lead in Monday’s trading after leading the downside race to support. Holding the $110 support level was important and today the index managed to move back above the $112.50 mark on the close. Social Media (SOCL) stocks provided some of the upside catalyst today and worth watching as well on the upside. Looking for short term move back near the $116 level short term on IWM.
Global and country ETFs were leaders on the upside today as well. The shift in worries over the geopolitical issues with Russia and Iraq helped spark the push higher. Those issues have not gone away, but the speculation of a peaceful resolution in Russia helped tremendously.
MLPs were also up nicely on the day as they benefited from the consolidation of Kinder Morgan into one company. That sparked a rally across the MLP complex. In turn the downside that has been in play reversed. News driven versus event driven… watching to see how it plays out moving forward.
Crude oil remains near support closing at $97.90 per barrel and gasoline as a result have moved back near the $3.25 level for unleaded at the pump. Stronger dollar has helped the outlook, but the refiners are still the likely winner in this move lower in crude and gasoline prices.
Tomorrow is another day and one to follow for more opportunities as this all unfolds. Bounce is in play and will have to validate if it is any more than just a bounce.