The US markets are back from brink of total technical breakdown. Now what?

The following article originally appears on Barron’s

Fair or Foul: Dow Jumps 300 Points as Oil, Banks Fly, Still Ends Week in the Red

By Ben Levisohn

Stocks surged today as strength in oil and financial stocks helped end their five day losing streak.

The S&P 500 rose 2% to 1,864.78 but still finished the week down 0.8%. The Dow Jones Industrial Average advanced 313.66 points, or 2%, to 15,973.84 but finished the week off 1.4%. The Nasdaq Compositegained 1.7% to 4,337.51 but finished the week with a 0.6% loss.

Bloomberg attributes today’s big gains to the even larger jump in oil–WTI Crude futures, the U.S. benchmark,climbed 12% to $29.44 a barrel. But I’d give the credit to JPMorgan Chase (JPM) CEO Jamie Dimon, who bought 500,000 shares of the banking giant. That likely helped reverse some of the negative sentiment in the financial sector, which gained 4% today after dropping about 18% this year through yesterday. Shares of JPMorgan Chase climbed 8.3% to $57.46 today, while the Financial Select Sector SPDR ETF (XLF) rose 4.1% to $20.49.

Despite this week’s pain, BMO’s Brian Belski sees some signs that the market “may be on the verge of stabilizing,” including the fact that the correlation between oil and stocks is beginning to weaken. He explains:

Plunging oil prices and their perceived implications have been a main investor focus. Much of the discussion has centered on the negative side of the equation as many have viewed this as a sign that global growth is on the verge of collapsing as well. We have disagreed and written quite extensively that while demand pressures are certainly part of it, an oversupplied market has been more responsible. Nevertheless it is clear that the severe drop in oil prices has spooked stock investors as the correlation between stock and oil prices has increased dramatically. In fact, we indicated in earlier reports that oil prices would need to find some support or investors would need to come around to our line of thinking before stocks prices stabilize. Fortunately there appears to be some good news – while oils has continued to slide, the “fear” associated with the slide appears to be lessening as the correlation between oil and stock prices has decreased quite a bit over the past few weeks.

Still, Investech Research’s Jim Stack says that the we’re in a bear market–if he’s reading the tea leaves correctly:

While 2016 opened with headline-grabbing weakness as the worst start to any year in history, it was the spike in day-to-day volatility that caught our attention. As we first noted in December 2014, a notable increase in volatility would almost certainly accompany the onset of the next bear market – just as it did in 2007 and in the late 1990s. It might prove misleading or dangerous to extrapolate the first five weeks to a full year; however, there is little doubt that daily volatility (both large UP and DOWN days) is at extremes. This is a tug-of-war between the bulls and the bears… and, so far, the bulls are losing. As you’ll note in this issue, our Negative Leadership Composite is locked in bear market territory and warning flag divergences are not improving. A market with narrowing participation and failing leadership is a market in trouble.

Yet at the same time that technical evidence of a bear market seems overwhelming, most leading economic indicators are resilient in not forecasting any recession on the horizon. So either this is a market-induced decline (or bear market) that might not have too many more months to run, or we should soon start seeing confirming negative signals on the macroeconomic side that Main Street is heading for trouble too.

Stay tuned.

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