Is this the Son of Bounce?

06/09/2010 12:30 pm EST


Jim Jubak

Founder and Editor,

Here’s one read of the stock market action of the last two days.

Essentially what we’re seeing today and what we saw on Tuesday, June 8, is a resumption of the bounce that was demolished by the horribly disappointing U.S. jobs report on Friday, June 4.

Before those dismal numbers—just 41,000 private sector jobs added in May—U.S. stocks looked like they had held above the 1045 February 2010 low on the Standard & Poor’s 500 stock index and were headed for an oversold bounce. Nothing really long-term and unlikely to be strong enough to reverse the general downward trend—for that we need at least a truce in the euro debt crisis and an end to fears about growth in China—but a typical bit of bargain hunting as traders decided that stocks were cheap enough to buy in hope of a short-term gain. The thinking then was that the bounce could take the S&P 500 back to as high as 1220 or so. That would have been a very welcome gain of better than 10% from the recent lows.

That all got interrupted by the June 4 jobs news.

But now it looks like that pattern may have kicked in again.

The 1045 level held, roughly. Stocks look oversold, again. And as confidence increases among traders that they can make buys on the long side without getting wiped out the bounce could strengthen in the days ahead.

“Could” is an important caveat.

The last bounce got derailed by bad news. So could this one. And it’s all too easy to draw up a list of potential bad news for the coming week or two.

The first big Watch out! moment comes on Friday (another Friday, sigh) when investors get retail sales figures for May.

The April numbers were shaky with sales growing at just 0.4% after a 2.1% gain in March. If you take out car, construction supplies, and gasoline sales to get what economists call the core retail sales number, retail sales actually dropped in April by 0.2% from March. That was the first month-to-month drop since December.

Certainly enough possibility of a disappointment to make traders nervous enough to take profits before the Friday data. Actual bad news on Friday could interrupt the bounce again.
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