ADP was slightly better and non-manufacturing ISM was a miss, but probably not as bad as everyone was expecting after such terrible ISM last week. Although these numbers led the market lower in the morning, sentiment took control in the afternoon. The market was insanely oversold - the DOW had been down for 8 days straight. To put this streak in perspective, the last time it was down for 9 straight was 1978. An oversold market bounce was widely anticipated, and even the guys on the floor were forecasting a snap back rally, one reason why I was a bit skeptical. Raising cash yesterday, although painful, ended up being the right move because I patiently watched a panic stricken market plunge to 123 in SPY, one possible level of support I had been eying pre mkt and one which I did not think we would reach. I was lucky enough to be flush with cash at this point and picked the bottom nicely.
In my morning update, I mentioned the importance of differentiating an oversold bounce with a sustained upward trend. What we saw today was simply an oversold bounce so I will be very cautious to buy this market in the short term. Looking to buy only on dips at levels of possible SPX support.
Two observations from today:
1. Euro strength despite a worsening credit outlook. Now that the debt ceiling issue is behind us (for now), I anticipate market attention to return to Europe. Looking to build an EUO position on deteriorating conditions. Also I like EUO has a general hedge because traders tend to buy USD as a safe haven during times of uncertainty.
2. Gold and treasury weakness as equities staged a relief rally. Looking to short both after any extreme sell offs and subsequent bounces off support.
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