Reality of Today's Rally

As mentioned early today, ES moved up with the EUR/USD, an event I was looking for yesterday, it happened today. The catalyst, there was none, which is also what I was looking for (more specifically a floated rumor to lift ES overnight that was bunk).

The main attraction in economic data today was Initial Claims,

Released On 3/8/2012 8:30:00 AM For wk3/3, 2012

	Prior	Consensus	Consensus Range	Actual
New Claims - Level	351 K	351 K	345 K to 360 K	362 K
4-week Moving Average - Level	354.00 K			355.00 K
New Claims - Change	-2 K			8 K

They missed and this going in to tomorrow's NFP, not exactly a risk on friendly environment.

A just released Gallup poll found that February jumped the most since 2010 for the 3rd consecutive monthly increase, this in front of tomorrow's Non-Farm Payrolls.

Again, not a market risk friendly piece of news.

The point of what I'm getting at can all be summed up by Soc. Gen's comments on today's market action...

"I have tried my best to remain relatively bullish towards global emerging markets (GEM) over the recent period despite the global risks, but even by my bullish bias standards, today’s move is simply stupid. EM assets are rallying with a vengeance today, but the timing of that move is just wrong, in my view. Why now, ahead of a massive event risk, namely the results of the PSI released tonight?

It is still unclear whether the outcome for the PSI is going to be a market-friendly one, and in any case, it is not going to be a straight-forward one to interpret for global investors either given the rather complicated structure of the deal. We basically have some serious disappointment doubled with some uncertainty. So unless EM investors know something I don’t—which would indeed make me stupid—today’s move is at best premature and quite a bit far-fetched.

I am happy to participate in this EM rally on Monday morning, once we have got confirmation that the PSI outcome was favourable and that the NFP was risk supportive."

So in effect, there's huge event risk, economic reports that are not favorable for tomorrow's NFP and huge uncertainty surrounding any Greek PSI outcome, yet the market rallies...

Looking at the earlier Market Update showing negative and leading negative divergences, this move DOES make sense to me. If you recall what I am looking for in the market to signal a solid reversal (and recall last night's breadth post that left me breathless), the rally is necessary, a head fake move even more so. So this apparent, "Stupid move" actually does make perfect sense if you read Sunday's analysis of what I was looking for this week to signal the end of the market's move up and a much nastier move down.