Major averages rose tepidly yesterday on lower volume, finishing roughly midbar. While contrarian arguments suggest a bounce as the put-call ratio has spiked and bearish advisors outnumber bullish ones, defensive stock industry groups have shown strength while the small cap Russell 2000 continues to show weakness, a sign of a risk-off market.
Timing a bottom in an unhealthy environment is like trying to catch a falling knife, as the saying goes. We are in such an environment. Thus the timing models are quick to test the waters and quick to reverse back to cash in this period of elevated volatility.
The market remains caught in a gap-up, gap-down news driven situation. Indeed, futures are up around 2% at the time of this writing as oil prices bounce more than 5%. The media is saying the bounce in oil is due to the stance the ECB took yesterday at 8:30 am EST on the possibility of additional monetary easing when they next meet in March. Of course, the media will always try to find a reason for any big move in the market but begs the question why, after the ECB suggested additional easing, the market was unable to sustain its stronger bounce in yesterday's trade.
Perhaps institutions are as confused as ever, thus uncertainty reigns making for more rip-tides in this environment of elevated volatility.
Sometimes the sidelines are the best place to be until the smoke clears.
Over in Japan, the Nikkei got a boost after an aide to Prime Minister Shinzo Abe said Thursday that “conditions for additional easing have fallen into place." The Bank of Japan will meet on Jan. 28-29, and some expect the central bank’s asset-purchasing program could be increased.