A dreary start on Monday morning attracted some traders looking for an oversold bounce. The indexes finished the day at their highs, with the Russell 2000 exchange-traded fund (IWM) leading the rebound with a gain of 0.9%.
Breadth was negative for most of the day, but strength in Apple (AAPL) and banks helped the indexes stay positive. A late-day push resulted in positive breadth of about 4300 gainers to 4000 decliners.
The most notable stat was that new 12-month lows expanded to over 800 names. While the indexes are still not close to testing the June lows, the expansion in new lows and the poor action in bonds and cryptocurrencies suggest that it is just a matter of time.
Currently, the market action is all about positioning for the Fed interest rate decision on Wednesday afternoon. There may not be a lot of fresh buying into the event, but there is very likely to be some short covering.
The market has had runups into Jackson Hole and the consumer price index, which proved to be a very bad move, so we have to wonder how much traders are willing to run up the indexes into what is sure to be a hawkish Fed.
The bulls argue that all the bad news is already well discounted, so we are unlikely to see a negative reaction to another rate hike, but I'm not at all convinced that the impact of higher rates has been fully appreciated.
We will have more positioning Tuesday, and it is important to understand that it really isn't meaningful action. We need to see the reaction of the Fed before we will have a better feel for whether there will be an immediate retest of the lows or some sort of counter-trend move.
Have a good evening. I'll see you tomorrow.
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