On a closing basis, the S&P 500 hasn’t dropped the necessary 20% to be considered an official bear market, but for all intents and purposes U.S. stocks are in a bear market. If you measure the index on an intra-day basis, the peak to trough decline was 21.58% at today’s low. And if not for a curiously timed and still unsubstantiated rumor from the Financial Times about a European bank recapitalization plan, the S&P 500 was set to close down more than 20% from its April high. Instead, the index ripped more than 4% higher in the last 40 minutes of trading. This is the FT’s second unconfirmed market moving rumor in recent weeks. The last rumor, which has since been denied, was that China was going to help bailout the euro-area. It seems as though the FT has become the mouthpiece of the global plunge protection team.
This end-of-day rally has short squeeze written all over it. The most heavily shorted stocks and exchange traded funds gained the most on the day. If there is no follow through on a bank recapitalization plan in Europe over coming days, stocks will correct—especially the most heavily shorted stocks.