Thanks Ben

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

I mentioned yesterday there was a good chance that gap down the major indexes created yesterday would get filled in due time, but I did not imagine it would take roughly 1 session.  This morning markets looked ready to roll over and give back the knee jerk “oversold” bounce at the open, but that WSJ story changed the complexion of the whole day.  I really wonder somedays if the Fed employes a technical analyst because the timing of these things is far too wonderful.

The S&P 500 gapped down from a low of 1359.13 Monday, or using the SPY chart 136.28.   Today’s high was 1354.76 (135.91 on SPY) so only 4.5 S&P points to go to make it as if yesterday never happened.  Of course volume was high yesterday (on the selling) and weak today (on the rallying) but in the central bank era post 2008 volume has no longer been a concern – light volume V shaped rallies are the order of the day.

Yesterday we were in no man’s land on the indexes and a lot of individual charts went very bad.  The latter still holds but the former can change quite quickly with another day like today.  A lot of the beaten down merchandise led the market today.

If this is yet another V shaped move and yesterday’s large volume selling meant nothing, it would surprise, but no longer shock me.  Very strange things now happen in the market and a lot of technical analysis has sort of been pushed to the side.  Only periods like May 2010-August 2010 when there was no QE running did the market really work fantastic within a TA framework.   I remember it as a fun, but relatively short, respite.  The framework you have to live off of when Twists, LTROs, QEs and the like are being deployed is different and still difficult to adjust to – hard to throw out a decade of thinking one way that easily.  Someone who has been in the market only since 2009 would have a whole different mind frame and this would be ‘normal’ whereas the action in a period like May-Aug 2010 would be abnormal.

So we’ll see the reaction after the gap up tomorrow how it shakes out.  In the old days yesterday’s breakdown would have… well nevermind.  The old days mean nothing in the QEn era.

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