The prime attraction Thursday was supposed to be Bernanke's congressional testimony, but he had little new to say. The prime player was China which lowered interest rates energizing bulls to keep Wednesday's rally going early, only to see markets fade into the close. Spain also successfully sold a bond issue (despite Fitch downgrading the country by 3 notches to BBB) although the 10 year yield exceeded 6%. Further it appeared in some quarters that Angela Merkel is more willing to deal (as in relent) to the ongoing bailout pressure from other leaders whether from France or the U.S. She stated, "In view of the current difficulties, it's important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary and that this is an expression of our firm desire to keep the euro area stable." That expression needs a lot of parsing and explanation since it may involve acceptance of euro bonds.
UBS pundit Art Cashin stated it well today in the following statement on CNBC:
"Today, Margaret Thatcher's autobiography, first published in 1993, reads like a prophecy. It shows how deeply and with what extraordinary wisdom she had examined Delors' proposals for the single currency. Her overriding objection was not ill-considered or xenophobic, as subsequent critics have repeatedly claimed. Germany, forecast Thatcher, 'would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would devastate their inefficient economies.' It is as if, all those years ago, the British prime minister possessed a crystal ball that enable her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her."
In more mundane news Jobless Claims beat estimates slightly (377K vs 379K exp. & prior revised higher as always to 389K). Revolving consumer credit fell in April by $3.4 billion. This isn't encouraging and of course doesn't include the rapidly expanding student loan bubble which no one wants to address particularly in an election year.
So despite Bernanke' non-event bulls chose to focus on some waffling from Merkel and China's interest rate cut to follow through on Wednesday's rally. But the rally didn't hold and investors were net sellers into the close. Gold (GLD) was the major casualty suffering large losses on disappointment of few QE hints. The Fed's focus groups will take note.
Volume was about average for the period and breadth per the WSJ was mixed to negative.
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Let's see if bulls can put a bow on this short squeeze on Friday.