Friday, July 13, 2007

Rally caps not needed?

No need to turn the cap around in front of the screen yesterday. The rally was stunning, especially in light of ubiquitous concerns about the waning receptivity of the credit markets to finance the m&a market. What happened?

The most immediate answer is that the shorts were squeezed big time. They had loaded up based on the "obvious", and they got clobbered. That certainly makes sense but if there is follow through today, or the market even holds its ground, that's not the whole story. A few retail sales numbers came through stronger than expected but they were not exactly robust. They did show that the consumer is still alive, and gave the bulls a data point for the day to demonstrate that as long as employment stays strong there is life at the mall. A much more macro view might suggest that the diversification of other countries reserves is just beginning and with the weak dollar there was a global panic to buy the U.S. equity market. That would have follow through that would confound traditional analysis.

Today's open, however, is not going to tell us about any macro themes. New retail sales numbers will likely trump yesterday's hopeful signs. Turn that hat around.

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