Thursday, July 30, 2009

Morning Briefing for July 30th: Testing the Highs

One of the themes I touched upon several times yesterday was the resilience of the stock market in the face of themes that would normally be bearish for equities: falling commodities and the drop in share prices in China. When markets fail to do what they normally do, that is often an excellent sentiment tell. Underlying demand for stocks has been sufficiently high that even normally bearish developments could not push us below the overnight lows yesterday.

That has emboldened the bulls and this morning before the open we're looking at a healthy rally. Those intermarket themes are once again in gear, with stocks higher overseas, U.S. dollar weakness vs. euro, and rises in commodities and Treasury rates. As we can see from the chart above, we're now testing the bull highs, having traversed the multiday range overnight.

Whenever we see an early strong rise following several days of consolidation, we have to be alert to the possibility of a breakout and an upside trend day. I will be tracking the market via blog and Twitter updates (follow here) to see if such a scenario materializes. Should we prove unable to sustain such a breakout move, we could develop an interesting move back into the multiday range. Either way, there should be some trading opportunity here.