With less than an hour left in trading the Dow was down 250 points and it appeared the closing well was going to mark a new 13-month low for stocks. But just as a new low would not have surprised me, either did the 45-minute rally to end the session. The nearly 400-point rally (yes that is a "4") enough to turn an ugly chart into a setup for a potential dead cat bounce into the end of the week.
The rally was fueled by yet more rumors out of Europe that the EU is discussing recapitalizing the banks. The SPDR Financial ETF ($XLF) closed up 4% after being down as much as 3% when it was trading at a 2-year low. Morgan Stanley ($MS) led the way with a gain of 12%.
Other risk sectors such as the Materials ($XLB) up 3.8% and Consumer Discretionary ($XLY) up 3.2% benefited from the news. The Utilities ($XLU) lagged with a loss of 0.4%, but still are within 5% of closing at a new 3-year high. The rotation out of utilities into the beat down sectors was not a big surprise.
The big question - what to do now??
I will continue to sit on my hands for another day or so and analyze the action based on the news/rumors. Because of the large amount of short sellers and bears in the market if the news remains positive overnight you can expect the rally to continue tomorrow. On the other hand if the news turns out to be nothing new, the selling should resume.
So basically I am keeping the same strategy that include fine-tuning out WatchList of stocks/ETFs so when it is time to buy we are ready to pounce.
Market expert and TV personality Matt McCall blogs about what is really moving the markets. He will emphasize Exchange-Traded Funds (ETFs) and individual stocks throughout the trading day.
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