The big news overnight seems to have been PMI data from China, Japan, and Europe. China surprised higher while still contracting: 49.7 vs. expectations of 48.3, which ignited S&P futures. Then Japan followed with still more contraction, but improvement: 49.9 vs April's 49.4.
The hope seems to be more stimulus coming from both countries which seemed to spark Risk On sentiment. Europe followed with numbers which expanded but also missed: 52.5 vs. April's 53.4 and below expectations of 53.2, all of which added to the sentiment that Draghi will be forced to provide further stimulus by the ECB . . . even though the benchmark rate is .25%. Therefore, some are thinking (or hoping) that this would mean European QE would be needed.
The bottom line is that for all the Risk On sentiment, futures have leaked back to their overnight breakout points. Therefore it's up to us to keep the ship of fools afloat as the market treads water in a confused sea.
A confused sea is caused when the tide moves one direction and the wind moves against it. The worst example occurs in the Gulf Stream, and it causes treacherous conditions that can be very uncomfortable for both vessel and crew.
Volume yesterday relative to the downdraft of last Thursday the 15th was almost 30% lighter -- not good for a rally.
High-yield credit, the closest cousin in risk to equities, is not confirming the rally.
New 52-weeks highs are muted, showing marked negative divergence.
The TRIN closed at .64, closing in on the Sell Zone.
A/Ds are beginning to show negative divergence as well.
None of this matters until the S&P finishes its work, however. Yesterday the gap at 1888.53 was filled. There is a 78.6% resistance level at 1893.66 and the volume shelf at the 1894 area. Getting below 1882.12 would be the initial warning that perhaps the ship was finally loaded with enough fools to have a party.
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