"It is common error to infer that things which are consecutive in order of time have necessarily the relation of cause and effect." -- Jacob Bigelow
Overseas markets were strong overnight and that is helping to produce an upbeat open in U.S. indices this morning.
"European stocks rose and the euro stayed under pressure on Tuesday as investors weighed the debt turmoil in the euro zone against an improved U.S. economic picture that looks set to deliver upbeat corporate results," Reuters reported.
In other words, they really don't have any idea why the market is up. They even go so far as to try to attribute the strength as being due to the earnings report from Alcoa (AA). AA has never been a market-moving stock and the only reason it receives much attention at all is because it is the first to report.
What is significant this morning are reports that China plans to further open its capital markets to foreign investors. China has been actively trying to boost its stock market recently and that has been the biggest macro boost we are seeing.
Whatever the confluence of events, it might be that it is producing strength in European banks as well as gold and some commodity-related names. But there were a number of earnings warnings again, with Tiffany (TIF) being one of the more interesting to contemplate.
Technically, the market has been in an extremely tight range since gapping up on the first day of 2012. We have five days of consolidation and it is providing a nice base of support for buying this morning. What has been most notable about the action lately has been the persistent dip buying. We have bounce back from early weakness four days in a row and have had good underlying support each day. Given the markets inclination toward perversity, it is awfully tough to trust a change of character that produces a gap up open.
What will make things interesting today is that we have no significant news scheduled. There are no earnings reports and just some minor economic news due later. At the moment, the market is in an optimistic mood because there isn't anything particularly negative going on and no real news from Europe.
Overall, we are back in a fairly common position that we have seen quite often over the last couple years. The indices are trending up on light volume and look technically healthy, but individual stocks don't have a lot of energy and finding chart set-ups is not easy. We did have some good action in biotechnology recently and small oils have attracted some hot money, so it is a positive development to see some pockets of momentum for a change.
As I've written a number of times lately, one of the easiest mistakes to make in this market is to be prematurely bearish. It is very easy to develop negative scenarios that often pushes us to exit early even when the price action isn't that bad.
We'll see how well this gap up opens, but given that we have opened weak and closed strong four days in a row, you have to wonder if maybe we are due for the reverse to occur.