- Reversal rebound continues after a slow start.
- More European lethargy ignored as investors, for today, focus on what the EU MIGHT do about the debt crisis.
- ADP Jobs Survey doubles expectations
- Challenger Layoffs Index shows a 200% jump thanks to military layoffs.
- ISM Services hangs on above 50.
- Some say data shows there is no recession. Maybe not for everyone right NOW, but just wait.
- BAC takes flak for its $5 debit card fee: a textbook example of how taxes and regulatory costs are paid by consumers, not corporations.
- The bounce continues as it should given all of the extreme negatives, but be mindful of a stall nonetheless.

Rebound pushes higher into the prior range.

A mushy start but stocks got on trace as futures started to move higher ahead of the opening bell, and after the first half hour stocks were clearly upside all day, adding to gains into the close after a very small lunchtime blip lower. Another day of solid gains after the Tuesday textbook reversal. Volume was lower but still solid enough as stocks logged another overall solid advance.

SP500 20.08, 1.79%. NASDAQ 55.69, 2.32%. DJ30 131.24, 1.21%. SP600 1.21%. SOX 3.10%.

NASDAQ moved solidly toward the center of its range while SP500, though continuing higher, is still in the lower reaches and below the late August and early September intraday lows where the index found bounce support. That may prove to be some resistance on the recovery move. DJ30 is very similar: good say but closed just below the 10 day EMA and is bumping those same resistance points SP500 has to face. Ditto SP600. Still plenty of work to do, but Wednesday was basically what you would expect after the Tuesday reversal, though it took some work to get the indices moving again after a morning hangover from the Tuesday run.

THE NEWS

Europe is always the issue that leads the US stock market around. Tuesday we saw that double move: the selloff, the reversal that looked great, then another selloff to negative. It took a last hour surge, and I mean surge, to close the market with those big gains. A story that the EU would finally bail out the banks is credited for the move. Europe again.

Wednesday there was a return of negative news from Europe with Moody’s downgrading Italy (some surprise there, huh?) and some quite weak PMI Service numbers. That was trumped, however, by the continued good cheer and nice feelings generated Tuesday on that bank bailout report.

That along with some almost decent US news kept the move alive. ADP Private Payrolls rose 91K versus 45K expected and a downwardly revised 89K prior. ISM Services clocked in at 53.0, less than August (53.3) but topping the 53.0 expected.

The market overlooked the Challenger layoffs report spiking by 211.5%, a two year high, likely because most of that jump had ties to military layoffs and Bank of America layoffs. I suppose that makes it okay even if there will be more unemployed out there on the streets. Perhaps KSS hiring 40,000 seasonal workers for the CHRISTMAS season (versus ‘winter holiday’) is warming the hearts of investors with some early Christmas cheer.

This is an important story, however. I reported over a week back that freight levels were running below the norm heading toward the holidays. This is the time, actually last month really, that merchants would place orders for the holiday sales. Freight levels are lagging and trucking companies are noting customers not placing their usual orders. This news from KSS may be the signal that this is going to change. Hope so.

THURSDAY

Heading toward that Friday jobs report and of course earnings that start in earnest next week. A very nice, credible bounce is underway. It should be after those massively negative sentiment and technical readings. Typically with such readings you would anticipate a very solid run. This move may indeed turn into such a run, but also those extreme sentiment indicators accompany an idea that the economy will improve. In 2009 the Fed finally put together the right combination of stimulus, namely QE1, and that was enough to trigger the stock market recovery. There was some modest economic improvement as a result, but the main driver was the liquidity going into the financial markets.

This time around the economic data is ticking higher the past few weeks but this is just an uptick in a downtrend in the economic data. It combined with the market extremes and the oversold condition is enough to spark a rally.

Staying power is the key as always, and Friday the rally gets a test with the jobs data. ADP was promising, at least in that it topped dour expectations. The actual number simply matched last month. There is also earnings. Stocks are bouncing into the vacuum left by the selloff, and earnings could further the move. Or earnings could chop it off at the knees. I have discussed this before, i.e. earnings that are not of the caliber seen in the past several quarters as the export market dries up due to foreign economies starting to struggle.

I am skeptical of the rally without some economic improvement and/or the Fed stepping in with a new QE program. If Europe announces a plan that is a positive, but it is not really an economic driver here. I am not in the camp that claims the market has factored in a European collapse. It has factored in some bad news from Europe and a weak US economy, but not a collapse in either. Thus a deal in Europe helps propel the current rally but it does not push the market to new highs. Why would it if China is struggling and the US continues to scrape bottom?

We have upside we are playing and upside we moved into Wednesday in order to ride the rally. We will happily let them continue the move. At this juncture, however, buying into new upside has a rapidly diminishing returns, or put another way, bad risk/reward. IF the rally has legs it will test the move and we will get some good entries at that point for the next leg. We are not really interested in chasing this leg higher.

Indeed we are going to put mostly downside plays on the report in the event this two-day bounce continues but then runs smack into middle range resistance and reverses. If the indices show a big doji, a gap and reversal, or the like, that would be a good indication they are reversing. We are going to watch for that as we let our current upside run; you have to be ready for the possibilities inside a range bounce choppy market that is trying to live off a wheezing economy here, in Europe, and increasingly China.

As the rally continues, if it can, we will look at banking some gain on plays such as QQQ that have two good days behind them and a third would take them near the initial target. Always good to take some gain on big moves inside a trading range because those moves, given you are in a trading range, can reverse rapidly. Won’t mind locking in some good gain on another upside rip, particularly given the Friday morning jobs report could steal some of those gains before we get a chance to lock them in after that news hits.