As of last Thursday’s close, the day before the U.S. Labor Department reported that far fewer than expected jobs had been created during June, the HSNSI stood at 39.3%. Today it is 33.4%, or a fall of less than six percentage points.
That’s the functional equivalent of a shrug. If contrarians are right, this means that the market has more downside work to do before a sustainable rally can begin. The typical gesture at the beginning of such a rally is more likely to be panic than a shrug.
On the positive side much of the selling came out of Europe and it can easily be reversed on news that the EU is taking steps to soften the blow from the crisis. Additionally, the type of extreme breadth readings we have seen tend to lead to snapbacks. While I have accepted a little more market risk into the carnage, I am waiting for the odds to stack up better before taking a strong directional bias.