Markets Break Short-Term Highs After June 2012 Spain Bank Bailout Announced But Rally Fades:
Financials outpace bearish dollar gains.
The stock market rallied today after the news this weekend that Spain was looking to obtain a bailout for $125,000 billion. U.S. equities jumped in the early part of the session similar to the Asian and European markets but the rally faded as the day ended. Market participants weren’t too excited about the loan and the early euphoria quickly dispersed as traders looked ahead to more headlines from Europe concerning Italian banks and the upcoming Greek elections on Sunday.
We have been watching tech, financials and small cap stocks which reacted more positively to the news early on than most other sectors. The financials hit new highs for the last few weeks with the XLF jumping to 14.33 taking out several days of bearishness but closed well below this level ending the day at 13.87. We expected new highs after last week’s price movement – see our analysis here.
The bearish dollar fund we have been watching too get more clues about market direction didn’t jump out the gate as high as the financials which gave us the first clues the rally would fade and Apple confirmed this when it changed direction around midday. Volatility rose today which suggests traders aren’t confident in holding long positions but these swings can be expected in a trading environment largely coupled to news from abroad.
We are continuing to stay focused on the financials, small caps and tech to see discrepancies between these sectors and changes in dollar price levels. We would be more comfortable making intermediate investment decisions after seeing more movement of the dollar out of the latest range or a successful retest of a recent low.
