10 Reasons The Stock Market Rebounded Two Mornings After Black Monday

After the famed – yet infamous – Black Monday market selloff, indices have started to recuperate. The Dow Jones Industrial Average, S&P 500 and NASDAQ Composite all rose on Tuesday and Wednesday mornings, and they are all currently up more than 1 percent on Wednesday afternoon. But, why are they moving?

Related Link: 10 Things You Should Know About Black Monday, Part Deux

In an email sent to investors on Wednesday, Credit Suisse analysts provided 10 reasons for Wednesday’s price action.

1. Equity Movement

U.S. equities rose 2.5 percent on Wednesday morning; most say it was a relief rally (after six straight days of decline and an aggressive selloff into Tuesday night’s market close), but believe the strength has little meaning unless it holds up.

2. Macro Numbers

The market was also surging on strong macro numbers. Durables in general retrieved strong figures in July. Transportation, vehicles and parts orders were also up (by at least 4 percent), offsetting the fall in nondefense aircraft orders – down 6 percent.

3. Bulls On The Street

After Tuesday’s weakness, the Street is becoming considerably bullish, having issued several upgrades in the banks, semiconductors, consumer, Internet, energy, healthcare, industrials and REIT segments. Upgraded stocks include:

• Citizens Financial Group Inc (NYSE: CFG)
• Fifth Third Bancorp (NASDAQ: FITB)
• KeyCorp (NYSE: KEY)
• Zions Bancorporation (NASDAQ: ZION)
• BB&T Corporation (NYSE: BBT)
• Fidelity National Information Services (NYSE: FIS)
• Prosperity Bancshares, Inc. (NYSE: PB)
• Nike Inc (NYSE: NKE)
• Best Buy Co Inc (NYSE: BBY)
• Childrens Place Inc (NASDAQ: PLCE)
• Anheuser Busch Inbev SA (ADR) (NYSE: BUD)
• Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)
• Amazon.com, Inc. (NASDAQ: AMZN)
• Ciena Corporation (NYSE: CIEN)
• National-Oilwell Varco, Inc. (NYSE: NOV)
• Marathon Petroleum Corp (NYSE: MPC)
• BHP Billiton Limited (ADR) (NYSE: BHP)
• Cooper Companies Inc (NYSE: COO)
• Dover Corp (NYSE: DOV)
• PACCAR Inc (NASDAQ: PCAR)
• Healthcare Realty Trust Inc (NYSE: HR)
• Healthcare Trust Of America Inc (NYSE: HTA), among others.

4. Energy Concerns

Energy price action remains concerning. The sector continues to relatively underperform the market, despite bullish API and DOE data. This suggests that the market is still bearish on oil prices for the second half of the year and the year to come, and that deflationary worries are still impacting on commodities.

Related Link: Credit Suisse Remains "On Guard" In U.S. Stocks, Despite Attractive Valuations

5. Healthcare And Tech Outperformance

Healthcare and tech stocks are outperforming on a New York Times article, which strongly suggested that the Obama administration recommends everyone receive access to Hep C treatment regardless of price.

6. Monsanto And Syngenta AG

Shares of Monsanto Company (NYSE: MON) are up more than 7 percent “as uncertainty of 'paying too much' is now removed, buybacks may possibly resume,” the email explained.

On the other hand, Syngenta AG (ADR) (NYSE: SYT) is down more than 12 percent as Monsanto loses interest. This news is moving the agricultural sector as a whole.

7. Afternoon Selloff

Brokers are waiting for a selloff on Wednesday afternoon. “Yesterday’s bounce was aggressively sold post European close and today feels like people getting ahead of that as several brokers around the street have highlighted risk parity effects in a heightened volatility environment as a reason for recent late day selloffs.”

8. High Volumes

Volumes are still very high – up almost 50 percent when compared to their 20-day average.

Source: Credit Suisse / bbrg

9. Industry Group Valuation Models

Credit Suisse explained that, despite the recent selloff, little has changed on its industry group valuation models since its early August update. “Food Beverage & Tobacco now looks highly expensive in small cap (joining its large cap peer which has looked expensive for quite some time). Utilities valuations are no longer cheap – in both small & large cap they are back to neutral levels.”

10. Technical Levels

Technical levels to watch include:

• A weak close for the cash S&P 500 Tuesday leaves futures now targeting the recent lows and “neckline” support at 1832/31. Resistance moves to 1902 initially, then 1925, ahead of the 1947/52 barrier. Ideal cap: above 1967/71; remains needed to ease current bearish pressure.
• Russell 2000 bias remains lower, testing key medium-term support at 1040/32.
• Shanghai Composite stays bearish for the 78.6 percent retracement of the 2014/2015 bull trend and price support at 2666/60 – ahead of core bear target of 2480/40.

Image Credit: Public Domain