US Stocks Fight Back Clinging To Rumors After Sharp Initial Fall; GLDX Glitters, GAZ Sinks

[Chart courtesy of MarketWatch.com]

US stocks fought back in the final hour of trading Wednesday despite witnessing sharp declines with the NASDAQ and the S&P 500 reclaiming the green territory even though the threat of a possible Greece exit continues hang over the markets. If things look desperate, hanging on to the latest rumor can restore momentum as ZeroHedge points out.

Sentiment turned weak following a late-Tuesday afternoon warning from the Congressional Budget Office that the economy may slip back into recession if government spending-cuts and steep tax hikes are put into action in January.

Treasuries surged ahead, pushing yields on 10-year notes to near record lows, as news of preparations for Greece’s eventual exit from the 17-member currency zone hit the market.

The Dow Jones Industrial Average (DJIA) finished at 12,496.15, off 6.66 points, after sinking 191 points during the day’s trade.

The S&P 500 Index (SPX) gained 2.23 points to end at 1,318.86 with natural resources fronting the winner’s list while utilities fared the worst among the 10 industry groups.

US Treasuries remained higher as the euro zone continues to vacillate over Athens’ membership in the currency union, pushing demand for safe haven assets higher. The benchmark 10-year Treasury yield tumbled 0.05 percentage points to 1.72 percent while yield on 30-year bonds dropped 0.08 percent to 2.79 percent.

ETFs in the news:

As concern over Europe drove the single-currency to record low levels, triggering a decline in equities and precious metals across the board, miners rallied as investors sought value in this heavily discounted sector. Both gold and silver miners advanced for the day.

The Global X topped the winner’s list, jumping 4.64 percent for the day. Other bullion linked products like the Van Eck Market Vectors Junior Gold Miners (GDXJ) that invests in small and mid-cap gold and silver mining companies also shined, gaining an impressive 4.58 percent for the day.

Among the day’s top losers, the Barclays iPath DJ-UBS Natural Gas Subindex Total Return ETN (GAZ) topped the list by shedding 3.31 percent for the day. As energy prices continue to retreat with oil futures for July delivery slipping below $90-a-barrel for the first time since November on Eurozone worries, this premium-laden product has taken a beating.

The CBOE Volatility Index, VIX, ended 0.15 points lower as markets recouped early losses. The Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) however, tumbled, closing 1.65 lower on the day. Other VIX-linked funds like the ProShares S&P 500 VIX Short-Term Futures Index (VIXY) also closed lower, shedding 1.59 percent.

Our Trend Tracking Indexes (TTIs) recovered slightly and are showing the following positions:

Domestic TTI: +2.22%

International TTI: -4.14%

After today’s sharp turn around, due to the extremely oversold condition, the big question is “how high can we go,” or is this another dead cat bounce? The fact that the rumor mill pulled the markets up, just as the S&P 500 was sinking below the 1,300 level, makes me believe that it’s just another fast and furious dead cat bounce. Technically speaking, the rebound has the potential to reacht the 1,340 to 1,360 level according to this analysis.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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