Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Today was quite tricky. After yesterday’s yucky close, buyers came in early as their Pavlov nature has now taught them as the dips of 2012 have been short and sweet. Usually a close as we had yesterday leads to a bad morning, but a lot of old rules have been thrown out of late. After the thought of “here we go again” (“it’s just going to go straight up isn’t it?”) permeated, only then did the first wave of selling happen. But of course it excluded most of the QQQ cabal. Which again led to the “here we go again” thought process – i.e. the Q’s will lead everything else higher. However, in a change of pattern the QQQ ETF actually followed the rest of the market down on the second, larger wave of selling.
So in essence what the market was ‘telling’ us with yesterday’s late selloff did come to pass but it not in easy fashion. Now as we sit with a few hours to go, the dip buyers actually felt some pain today, and the normal buy any dip action has not come to fruition. The main indexes are still in good position in what a normal upward market would look like (the S&P 500 for example is between the 10 and 20 day moving averages) but in 2012’s market it is in a relatively weaker position. That said, the key area is between 1378 and 1387; the former is the breakout point of the S&P 500 and the latter being the 20 day (which also coincides nicely with last week’s lows). I’d put more importance on the former level as we saw early in March how a break of the 20 day only caused a headfake for those who heeded it as a change in composition (hand raised). Below the mid 1370s and I think even the uber bulls will need to make some concessions.
Next week is the tricky one of the month with all the much watched reports from employment to ISMs to overseas PMIs. Today the overseas slowdown is taking the cyclical stocks to the woodshed, but we saw the same thing multiple times in March, only to be forgotten within days. One of these times it will matter for more than 1-2 sessions. Things such as gas in the low $4.00s – which the market is also ignoring now, will eventually matter as well. Profit margins were squeezed last quarter, but no one seemed to care during earnings season as the gusher of money from LTRO seemed to swamp everything. But this April’s earnings season is going to require something better than almost all of the S&P 500 earnings growth coming from Apple and AIG. All these risk factors are “known knowns” – but you just don’t know when the market will care about them.
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
