Over the past week stocks have been falling in response to the bond market. Just as the major indices were about to follow through out of a lower high, however, the Beige Book release yesterday sparked a rally as it indicated that the Fed has indeed engineered a goldilocks scenario. One trader noted, however:
Since the Beige Book was prepared there has been worsening news on the housing and real estate fronts. The Beige Book was based upon information collected before June 4, so it does not include data since then, and does not include the observations made by Bernanke in his June 5 speech.
So, in other words, the market rallied under a premise that is not backed up in fact.
Today the PPI report comes out, so the market has even more data to digest. Right now the market is getting tossed around like a rag doll as it tries to find its way.
We have a difficult time believing that the serious weakness we witnessed last week and all those distribution days (including yesterday's) can so easily be shaken off. Bonds are still the main driver of stocks in this market and right now bonds are consolidating within an established downtrend.
It looks like the chop is going to stay nasty until the bond trend reasserts itself though.
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