Positive Divergences Emerging

We are starting to see some positive divergences in the market, which is a bullish sign for the short term. We still have a big headline risk from Greece which can always whack the market but today’s action is encouraging.

What I mean by divergence is when the market reacts in an unexpected way. Today the Philadelphia fed survey came in very weak, the market reacted pretty negatively initially but the sell off did not stick and it bounced back pretty strongly after a few minutes. The other divergence that we are seeing is with the Euro. On Monday the Euro was 1.435 against the dollar when the S&P 500 hit 1265, as of today the Euro has fallen further to 1.415 but the S&P 500 is above that 1265 level.

These type of signals are generally good very short term reversal signals. I would really like to see some positive surprises in the economic data to make a call the Summer sell off is ending, we cannot deny the fact that the data has coming in weak. The other factor in play is that tomorrow  is options expiration day and sometimes due to unwinding of options trades, the market may not behave as expected.

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