Bounce or rally? We still don’t know.
The U.S. stock markets started with a strong bounce this morning. The Standard & Poor’s 500 index moved up 1.1% off the starting line.
Key was “news” from Europe that suggested Ireland might be closer to a rescue deal. That led to a retreat in the U.S. dollar against the euro. Which helped commodity and commodity stock prices. A rebound in China overnight helped tee up the European rally.
But the market couldn’t muster much follow through from there. The S&P bounced between 1198 and 1200 for much of the day before finally moving down to close at 1196.69.
As the day wore on, the market noticed that there’s still no actual deal in the Irish debt crisis. On hope, the yield on the Irish 10-year bond dropped 0.11 percentage points. A successful auction of $5 billion in Spanish bonds added to the positive trend in the euro.
The fall in the dollar on an improving euro and on a general decrease in fear pushed up gold (by $15.10 an ounce), oil ($1.38 a barrel) and other commodities. A jump in the price of sugar on news that Indian sugar production may fall short of projections due to heavy rains helped draw interest to the commodity sector.
But all this was only enough to push the S&P through one of the two index levels I was watching today. The index cleared and closed above 1195, which marked resistance at last week’s low, but it was not able to crack 1200, the first important resistance level.
That leaves the market at the mercy of tomorrow’s news flow, I think. Positive developments out of Ireland that send the euro up against the dollar would probably be enough to take out resistance at 1200. And that would turn Thursday’s advance from a one-day bounce to a rally with at least a few days to run.