August 2012 Rally May Continue As China’s Industrial Production Slows:
Stocks jumped in the last half hour of the trading session today as investors gave up short positions before the weekend. U.S. equities have been rangebound as we predicted but gained momentum after another lackluster volume trading day with low volatility. The VXX exchange traded fund which measures volatility hit new recent lows today as traders quietly dipped into long positions. Having a large short position after the weak Chinese economic data released today didn’t pay off.
China’s Hard Landing?
China is suffering from slowing economic growth which led more economists and traders to speculate the country might do more of the FOMC’s bidding for them by lowering reserve requirements or interest rates. Many traders and analysts we talk to don’t believe China’s numbers and speculate the growth levels could be even weaker than revealed today.
China reported a slowdown in industrial production, along with a decrease in year on year export growth to 1 per cent in July. The fastest growing economy is experiencing a hard landing and it’s expected that after putting on the brakes a few years ago, it’s time for switching to the gas pedal to accelerate growth. The data from China was the weakest increase in the nation’s industrial production in over three years.
Tech and financials led the rebound today but small caps didn’t participate as much as usual for a strong rally. This means the rally has legs if investors rotate risk slowly back into this sector in the next few weeks. We are bullish on the S&P 500 in the short run and believe any dips should be taken as buying opportunities.