Stocks Bounce From Oversold Levels
Stocks are higher in early trade, adding to yesterday's positive reversal. Stocks tested their recent lows yesterday morning, but once they held the market began to rebound and recouped most of its losses into the close. Today looks to be an extension of that buying, and stocks are bouncing further after reaching deeply oversold levels.
In economic news, Q4 productivity came in higher than expected at 3.2%. Additionally, unit labor costs fell more than expected by -1.6%. This should help keep inflation fears at bay.
In corporate news, Twitter (TWTR) reported its first quarter as a public company and while it beat estimates active user growth looked to be a bit slow and this worried investors. The stock initially traded higher but now is down by more than 20%.
GMCR is up by more than 30% after beating earnings but also announcing a partnership with Coca-Cola (KO) who will purchase a 10% stake in the company.
Asian markets were mixed overnight. The Bank of Japan said the Japanese economy is on track to reach its 2.0% inflation target.
Europe is trading higher but is off its best levels after the ECB left its key interest rate unchanged at 0.25%. Investors were hoping to hear the central bank talk about additional monetary easing policies, but Draghi did not mention anything.
Trading comment: The S&P 500 is trading back up to the 1770 level, which is the area of support it was trying to hold in late January. If former support levels become new resistance levels, the market could have some difficulty punching through this ceiling, as least in the short-term. Remember that market corrections rarely occur in a straight line. Markets get oversold and bounce, but that doesn't necessarily mean the correction is over. We said most corrections last 4-8 weeks in duration. So this market likely has more work to do on the time side, and we will need to see if that SPX 1740 support level that held yesterday is tested again and holds again. Meanwhile, most stocks are in correction mode also and we could see some new leadership coming out of this correction at some point.