Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
It’s been an interesting and volatile week – with yesterday’s action taking the cake in terms of bipolar action. I didn’t go back to count the points intraday but the swings had to lead to over 60 S&P points worth of movement.
+6, -9, +11…and that was in the first 75 minutes of the day.
Even within this recent downtrend/sideways action it’s not been an easy path for bears – this week we’ve opened up 4 of the 5 sessions, including today, despite some weak closes the previous day. In fact Tuesday’s “rip your face off” rally came after a weak close, very near the lows Monday. One who enjoys black helicopters might make a note of this. 
Last week on the first probe downward the S&P 500 shred right through S&P 1370, a very key level from last year. That had been the 5th day of a sizable 5 day pullback, from which an “expected” oversold bounce came. I use the word expected because it seemed very likely it was set to come, you just didn’t know which session it would happen. Since that recovery the index has been flopping around like a fish, in violent fashion, around the 50 day moving average. Each time we recover that level, we lose it within a day or two – and vice versa. We can also see the less important 20 day moving average coming in as (light) overhead resistance – but the slope of the average has inverted back down.
Taking a step farther back, we see other than a small headfake Monday – which again was a poor close… below a key level… which usually leads to bad things (but instead led to a rip your face off rally), 1370 has been the line in the sand this week to the downside. That level was the high of the 2011 rally on May 2nd of that year. And a level the S&P 500 battled through in late February quite a few times before finally making it over for good mid March. Yesterday that was also exactly where the index fell to before buyers stepped in late in the day. So we continue to look to be “bear flagging” (until proven otherwise) but defenders of 1370 continue to show up. Especially in the thinly traded overnight session.
Through this period, the “easier” trade would be if we had a break of S&P 1370 during the normal hours of the day, but thus far no go other than that tease Monday. So one wonders if it’s going to happen in an overnight session (assuming it does happen) when very few can position for it, as the market likes to make it difficult on as many as possible. Either way we remain in a highly volatile market, with bipolar action from day to day which does not lend credence to exposing a lot of capital to the random whims of this type of activity.
Further a lot of the leadership stocks have technical damage incurred to their charts. In the end, the market (indexes) are composed of individual stocks. As these individual stocks weaken technically, eventually it impacts the indexes. I’ll point two out just because they are obvious – IBM for the DJIA and Apple for the NASDAQ. Surely next Wednesday, the latter will gap up or down based on the Tuesday night earnings report but as mentioned yesterday it is not acting well – even when the market was surging in the morning, Apple was down materially. Not a happy divergence.
For now, we are in the 10th session of this basing, violent, sideways action after the initial breakdown. With the exception of two of those sessions almost all the action has been in this white noise area of 1370(ish) to 1390(ish). Let us watch to see which way this base resolves.
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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
