My friend Brian Reynolds — bond guru at Kirlin Securities — had a very insightful take on Friday’s intraday reversal:
Barbarians Repelled at the Gate
Earlier this week, we said that bearish investors were likely to try to draw a line in the sand at the 1050 area on the S&P, and noted yesterday morning that the stock/bond intra-day relationships that we monitor were getting overbought from the perspective of equities. Shortly after 2:00, the version of the intra-day moving average convergence/divergence indicator (MACD) that we watch rolled over, and the S&P fell from just shy of 1050 to below the 1040 area that it had broken out from in the morning. It was almost as if the bearish investors were repelling the advance of the barbaric bulls at the gate that represents 1050.
In less than an hour, our MACD indicator went from overbought to neutral to slightly oversold. That’s about as quick as it ever moves. Right then, the decline halted, as if the bearish investors were pocketing their quick gains and returning the proceeds to their ammunition depot, storing them up in case they need to defend the 1050 area again.
That tells us that it will likely be difficult, in the short run, to pierce the 1050 level, as that seems to be the area above which a significant number of bears would throw in the towel. I don’t know whether that means we need to retest the 1000 level or not, though doing so would remove the short-term overbought stochastic levels and would make an eventual move above 1050 more technically sustainable.
(Brian does good work, and frequently publishes at both Kirlin’s site and at Minyanville.com.)
Is that consistent with Thursday’s theme of buying capitulation / change in meme? Yes, but with earninbgs seasons in full bloom this week, expect earnings news to be the main driver of the markets . . .