Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As we mentioned Friday, it’s not so much the news but the reaction to the news that was important to take note of. Markets shook off bad news quite easily, and we are seeing the celebration of that translated in this morning’s gap up. Thus far 2012 has been an interesting year at the index level. Aside from 1 session (Friday’s) we’ve only seen completely flat opens – with very little volatility all session – or gap ups (this morning’s will be the third). Gap up, flat, flat, flat flat, gap up, flat flat flat, etc. And one session all year that differed from that pattern. Interesting.
While almost the entire rally has been contained to 3 sectors, we have to look at the indexes and respect the movement. As we exited 2011, it was a coin flip in terms of the next move – there was no clear set of signals at the time. However, over the past few weeks we see there has been a break to the upside, and some intermediate term indicators are flashing far more positive. This morning’s gap will take the S&P 500 over November highs creating a ‘double top breakout’. Further we can see an inverse head and shoulder that has resolved to the upside with the action of the past 4-6 sessions. This is generally quite positive.
We can see the next major resistance area is not until 2011 highs of 1350ish, which is about 4% higher from where the index should open.
Now with that said, the move since Dec 19th has been relentless in nature with only two sessions of any real selling – and even those two were very modest by second half 2011 standards. Thus the move this morning will certainly have those who are missing it anxious and throwing in the towel and wanting to chase. Generally when the last holdouts want to buy the market you are most prone to shorter term corrections, so these holdouts should begin converting soon. But with the intermediate term market structure changing to a more positive tone, any of the nearer term (and necessary) corrections would be seen as buying opportunities, rather than “run to exit” calls, by those who read this market in a technical way.
What does this have to do with the real economy? Not much at all – indeed there are some very real concerns growing. (Adding to that is more news of slowdown in the “official” GDP numbers out of China – but as we now know, slowdowns are good because they mean more intervention) And the market is not the economy… and even less so in an era of near constant intervention by governments and central banks. As outlined last week, if we do get a new round of quantitative easing, this part of the rally will be the “those in the know get in” part. And as long time readers know from many stories posted in latter 2011, “those in the know” is a broadening group.. which certain circles can now pay for for access.
This week we enter the heart of earnings season – Thursday being the most interesting day. Certainly sometime here in the next 2 weeks we shall see someone of note blow up, and we have to see how a now increasingly extended market absorbs that. If the answer is “well” it puts another feather in the cap of a potential multi month move to the upside ahead. Keep in mind a Fed meeting comes the week after this and market expectations for even more ‘assistance’ on Bernanke’s behalf grow. Of course, no one asks what is so fundamentally wrong that this economy needs constant and ever growing assistance … as long as it gooses asset values (even if temporarily), that’s all that matters to the speculator class.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
