Markets are higher today, but not after some significant overnight and morning turmoil. May traders are closely watching Shanghai markets, as they’ve been in freefall for some days now. Last night was no exception, as the index traded over 5% lower before a news-induced rally. After the swoon, rumors surfaced that China would consider a negative rates on deposits, which in turn would likely spark spending(and thus economic stability). This news was taken very positively, as stocks rallied over 7% off their lows and closed on the highs.
The late-day strength in China is spilling over into domestic markets, and stocks are currently only slightly off their highs. The S&P 500 is leading today, up about 0.9% on the session, while the Russell 2000 and Dow are each up by about 0.7%. Today’s relative laggard is the Nasdaq, up only 0.6%, amid continued weakness in the shares of AAPL. Bonds are lower yet again, as 10-year yields continue to climb higher, and remain perched above the 2.5% level. Equity bulls would like to see some weakness in rates, as they’ve been a huge hindrance for stocks as of late. Metals are slightly lower on the day, but are trading in a wide range.
CHART OF THE DAY
Zale Corp. (ZLC) – The specialty jewelry retailer has been very strong as of late, as the equity has rallied over 100% year-to-date. The shares recently spike dramatically higher on blowout earnings, and have since consolidated back near the 8 level, site of a very key former resistance zone. This area should act as support going forward.
I like a long entry here with a stop on a close below 8. I would initially target a move to 10, with 12 as a stretch target.
WHAT I’M EXPECTING
Assuming markets can hold their lows made this morning, I’m looking for a move back to 1600 and beyond on the SPX. Sentiment seems to have soured in a hurry, as most traders appear to be in bounce-shorting mode. Additionally, stocks have weathered the interest-rate storm for the time being, and are higher despite rates also moving northward. Given the equity resiliency today, it appears that we’re ready to bounce from here so long as rates don’t see a continued dramatic spike. Should today’s lows be breached, I would alter my thesis going forward. As far as upside targets go, it seems that everyone is watching the 1600-1610 area. Given that it’s rare for “everyone’s” thesis to play out perfectly, I think there’s the potential for an overshoot to the upside, with 1620 or so as a potential upside target.