BOINNNG

The Spoos flirted with the 200 day MAV (and not 2000 day as I erroneously typed yesterday) but it bounced, causing the itchy trigger fingers to hold off. The better ISM number prompted a rallyette which was quickly faded. This is a consistent theme of late, sell the bad news hard and sell the better news on a rally too. People still seem to be looking over their shoulders however to see who is willing to really sell this market down and without real conviction we bounce and fall and bounce again.

In a freak event yesterday, the Shanghai Composite fell!! Not only did it fall, it had its worse drop since 12 June and second worst since 21 May. It posted a whopping 1.13% fall. Now that may not sound like a lot, and it’s not, but when the market has only gone like this of late...

it’s newsworthy; especially when there is no other news about. I found it odd too that China was down on the day the RBA leaves rates unchanged @ 3% and is more sanguine on the Australian economy, noting in particular the stronger growth in China which is impacting Australasia. For the record, 12 June saw 1.91% and 1.54% falls respectively. Monday’s other Asian outlier Korea stayed up today though, thanks to another 2.5% performance from Samsung on a BNP upgrade to Buy from Hold.

If you do think we’re going to continue downward, here are some stats published by David Rosenberg yesterday. The conclusions are not earth shattering; during a retest, the defensives, govvies and greenback tend to be the best performers and the laggards are the ones that led the rebound, but there is some food for thought re length and levels etc…

*The average length of the testing phase is 53 calendar days and 38 business days (versus 45 calendar days and 33 business days for the interim bear market rallies).
*On average, the S&P 500 undergoes a correction of more than 20%.
*Market volatility more than doubles, on average.
*Bonds rally, with the 10-year Treasury note yield down nearly 15 basis points, on average.
*Commodity prices decline an average of 15%, again as cyclical trades unwind.
*Corporate spreads (Baa) widen an average of more than 60 basis points; it is very important to be focused on high-quality paper during these market testing periods as high-yield spreads widen, on average, by more than 300 basis points (and keep in mind the vast outperformance, which is typical during bear market rallies).